As submitted to the Securities and Exchange Commission on December 29, 2017 (Amendment No. 1)

PART II – INFORMATION REQUIRED IN OFFERING CIRCULAR

Preliminary Offering Circular dated December 29, 2017

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 Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

OFFERING CIRCULAR

Hall Structured Finance II, LLC

Up to $50,000,000 of 8% Debentures

Hall Structured Finance II, LLC, a Texas limited liability company, is offering (the “Offering”) up to $50,000,000 in aggregate principal amount of its 8% Debentures (the “Debentures”). The Debentures provide for the payment of interest on a quarterly basis, in arrears, at a rate of 8% per annum to the Debenture holders (the “Holders”), payable from our operating income or reserves. The maturity date for the Debentures is December 31, 2022 (the “Maturity Date”). Our principal office is:

Hall Structured Finance II, LLC

2323 Ross Avenue, Suite 200

Dallas Texas 75201

Telephone (214) 269-9500

Hall Structured Finance II, LLC is externally managed by HSF Holdings Management, LLC (the “Manager”). The minimum investment in Debentures is $20,000. Investments must be made in $5,000 increments. The Debentures are being offered until the earliest of (1) the date on which $50,000,000 in aggregate principal amount of the Debentures (the “Maximum Offering Amount”) has been purchased, (2) December 31, 2018, which date may be extended in our sole discretion, or (3) the date on which we terminate the Offering, in our sole discretion (the “Offering Termination Date”).

Hall Structured Finance II, LLC is a private real estate lender that, along with our predecessors in interest, have a 20-year track record (“HSF’s Track Record”) of successfully providing value-add senior secured and junior secured acquisition, bridge, and construction financing for real estate projects located throughout the United States. We will use the Offering Proceeds to provide additional funds for acquisition, bridge, and construction financing (the “Financings”) on a value-add basis to borrowers (the “Borrowers”) secured by and for hotel, office, multifamily, condominium and mixed use and various other real estate projects located throughout the United States (the “Projects”).

Investing in the Debentures is speculative and involves substantial risks. You should purchase these securities only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 5 to read about the more significant risks you should consider before buying our Debentures. 

The United States Securities and Exchange Commission does not pass upon the merits of 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 solicitation materials. These securities are offered pursuant to an exemption from registration with the Commission; however, the Commission has not made an independent determination that the securities offered are exempt from registration.

The use of projections or forecasts in this offering is prohibited. No one is permitted to make any oral or written predictions about the cash benefits or tax consequences you will receive from your investment in the Debentures.

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.

This Offering Circular follows the Offering Circular disclosure format.

The date of this Offering Circular is December 29, 2017

IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR

 Please carefully read the information in this Offering Circular and any accompanying Offering Circular supplements, which we refer to collectively as the Offering Circular. You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with different information. This Offering Circular may only be used where it is legal to sell these securities. You should not assume that the information contained in this Offering Circular is accurate as of any date later than the date hereof or such other dates as are stated herein or as of the respective dates of any documents or other information incorporated herein by reference.

This Offering Circular is part of an offering statement that we filed with the SEC, using a continuous offering process. Periodically, as we make material developments, we will provide an Offering Circular supplement that may add, update or change information contained in this Offering Circular. Any statement that we make in this Offering Circular will be modified or superseded by any inconsistent statement made by us in a subsequent Offering Circular supplement. The offering statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this Offering Circular. You should read this Offering Circular and the related exhibits filed with the SEC and any Offering Circular supplement, together with additional information contained in our annual reports, semi-annual reports and other reports and information statements that we will file periodically with the SEC. See the section entitled “Additional Information” below for more details.

The offering statement and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov.

Our Company and those selling Debentures on our behalf in this Offering will be permitted to make a determination that the purchasers of Debentures in this offering are “qualified purchasers” in reliance on the information and representations provided by the Holder regarding the Holder’s financial situation. 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.

TABLE OF CONTENTS

RISK FACTORS

The purchase of Debentures is speculative and involves substantial risk. It is impossible to predict accurately the results to an investor of an investment in HSF because of the general uncertainties in the real estate and financing markets.

This Offering Circular contains forward-looking statements that involve risks and uncertainties. These statements are only predictions and are not guarantees. Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “anticipate,” “plan,” “estimate,” “believe,” “potential,” or the negative of such terms or other comparable terminology. The forward-looking statements included herein are based upon the Company’s current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the risk factors discussed below. Any assumptions underlying forward-looking statements could be inaccurate. Purchasers of Debentures are cautioned not to place undue reliance on any forward-looking statements contained herein.

You should consider carefully the following risks, and should consult with your own legal, tax, and financial advisors with respect thereto. You are urged to read this entire Offering Circular and any Offering Circular supplements before investing in HSF.

Risks Relating to the Financings

Higher Risk Financings

HSF makes higher risk loans than are typically made by conventional lenders, such as banks and insurance companies, and there can be no assurance that we will be profitable. The Financings typically provide for higher interest rates and debt service burdens, higher fees paid by the Borrowers, higher loan-to-value ratios, lower debt service coverage ratios, out of favor property types and complex structures or lending arrangements that may not be the standard in the lending industry. The Financings may have been or in the future may be made under circumstances where other lenders would not lend money due to the risk of default of the Borrower, the speculative nature of the Project, underwriting restrictions or otherwise. We anticipate that we will make new Financings to Borrowers who may not be able to obtain their desired financing from other lenders. The Borrowers may not be able to pay us all amounts due under the terms of the Financings and we may not be able to recover our investment in any Financing where we have taken back a property securing such Financing either through foreclosure, deed in lieu of foreclosure or through other means. Any or all of the above circumstances could result in an adverse effect on our business operations and its inability to pay all interest and principal on the Debentures.

Consequences of Financing Default and Foreclosure; Restructuring and Limitation of Remedies

The Financings are subject to the risk of default and bankruptcy by the Borrowers. Circumstances may arise where we determine it is in our best interests to consent to modifying the terms of a Financing to be less beneficial to us than the existing terms of the Financing, such as agreeing to lower the interest rate, extend the maturity date, and/or lower the principal balance. In addition, if any Bank Loan is secured by the Financing, the lender of such Bank Loan may not be willing to consent to the modification of the Financing or modify the terms of the Bank Loan to accommodate the modification of the Financing. In addition, a default on a Financing may cause a default under one or more of the Bank Loans, and as a result the lender(s) of the Bank Loans could declare all amounts under such Bank Loans immediately due and payable, foreclose on our interest in the Financing, or insist that we enter into renegotiations of the Bank Loans that are unfavorable to us, such as requiring principal pay-downs or increasing the interest rate charged to the Company. A Borrower who goes into default on a Financing or is otherwise unable to satisfy its obligations under a Financing may file for bankruptcy, despite our efforts to minimize such risks through our selection, underwriting and structuring process for making Financings and sometimes requiring that the Borrowers be bankruptcy remote special purpose entities. In the event of a Borrower’s default or bankruptcy, our ability to get the Financing repaid, foreclose on the Project, or become the owner of the Borrower could be delayed for a significant period of time, which could negatively affect our ability to pay interest and principal on the Debentures. During a bankruptcy by a Borrower under a Financing, we may not receive payments on its Financings. Defaults under the Financings and bankruptcies by the Borrowers may reduce or eliminate the amount of cash available to us and, thus, negatively affect our ability to pay interest and principal on the Debentures. In addition, certain of the existing Financings are nonrecourse to the Borrowers and some or all of the new Financings may also be nonrecourse. Therefore, we will be relying on the value of the Projects and our ability to sell the Projects, not on recourse liability potential against the Borrowers, to recover the principal amount of and accrued interest on a defaulted Financing. Furthermore, the value of a Project and the ability to sell a Project may be affected adversely by market and other conditions outside our control. There can be no assurance that we will not incur losses on the resale of Projects acquired by foreclosure or deed in lieu of foreclosure.

Outstanding Loans Concentrated in Hotels

A substantial majority of the amounts outstanding under the Outstanding Loans are comprised of loans secured by hotel properties. If the hotels that secure the Outstanding Loans experience adverse operational issues or otherwise have a decrease in revenue, the Outstanding Loans may not be able to be repaid by the Borrowers, and we would pursue our available remedies, one of which may be to take ownership of the underperforming hotels. This could have a significant negative impact on our business operations and our ability to pay all interest and principal on the Debentures. See “Risk Factors – Hotel Industry Risks.”

Unspecified Financings

HSF intends to make Financings which have not yet been identified, which means potential investors in the Debentures will not have the opportunity to evaluate for themselves the relevant economic, financial and other information regarding any new Financings which may be made by us. We have sole authority and discretion in choosing which Financings to make. Consequently, investors in Debentures must rely exclusively on our ability with respect to the selection of the Financings. No assurance can be given that we will be successful in making profitable Financings or that we will achieve our objectives.

Changes in Our Investment Policies

HSF may amend or revise our investment policies or business strategy without the consent of the Holders.  In addition, we may also change our strategies with respect to the Outstanding Loans or the existing Projects.  Any such change could have a material impact on our operations and could alter the nature of an investment in the Debentures.  Our broad discretion in setting policies and the Holders’ inability to exercise control over those policies increases the uncertainty and risks Holders may face.

Uncertainty as to Extent of Diversification Among Borrowers and Projects

HSF has no obligation to ensure diversification among the Borrowers or Projects. The Outstanding Loans exhibit greater concentration as to property type, the Borrowers, project size and geographical locations, including secondary and tertiary markets, than would be generally found among conventional lenders, including banks and insurance companies. In particular, with respect to Project type, as of September 30, 2017, most of the Outstanding Loans are secured by hotel properties. It is possible that we will make only a limited number of new Financings to a limited number of Borrowers for Projects that are concentrated in only a few geographic locations within the United States, thereby limiting the diversification of the Financings and placing a substantial portion of the funds invested in the same geographical location with the same property and Borrower-related risks. In such a case, the decline in a particular real estate market could substantially and adversely impact one or more Projects, which could negatively impact the Borrowers’ businesses and their ability to repay all amounts owed to the Company under the terms of the Financings. This could negatively affect our ability to pay interest and principal on the Debentures. A more diversified portfolio of Financings might not be impacted to the same extent. See “Risk Factors – Risks Relating to the Financings – Outstanding Loans Concentrated in Hotels” and “Risk Factors – Hotel Industry Risks.”

Variable Interest Rates

The Outstanding Loans have variable interest rates which are tied to a spread over 30-day LIBOR, and it is anticipated that all or a significant portion of the new Financings will also have variable interest rates. As a result, the interest payments to us on such Financings may vary over time, and may result in our being entitled to receive more or less aggregate interest payments (though not less than the amount provided under the interest rate floor amounts) than anticipated.

Financing Parameters Relating to Maximum Loan-to-Value or Loan-to-Cost Ratio Imposed by HSF

HSF has established general financing parameters in setting loan amounts as to individual projects on new Financings including maximum loan-to-value ratios and/or loan-to-cost ratios. We may change these parameters and limitations at any time in our sole discretion. There can be no assurance that our financing parameters will be sufficient to protect us from the risks associated with making the Financings.

Total Cost of the Financings; Interest, Origination Fees, and Other Fees

The Financings may obligate the Borrowers to pay Financing origination and other fees and interest rates within the parameters specified in the Financing documents. It may not be possible for us to find Borrowers who will borrow at such fees or interest rates. As such, we have the right to vary such interest rates in our sole discretion or to vary or not charge Financing fees. No assurance can be given that we will be able to secure Borrowers or that any Borrowers secured will be able to pay interest and principal on the Financings when due.

Availability of Mortgage Funds

Repayment of the Financings will likely depend on the Borrowers’ ability to sell or refinance the Projects securing the Financings. The availability of commercial mortgage financing to borrowers has been constrained in recent years, and many lenders have substantially reduced their commercial mortgage lending. This lack of mortgage capital has led to an increase in the credit spread charged by lenders which, depending on the underlying loan index, could lead to increased interest rates to borrowers. In addition, lenders have reduced the extent of leverage available to borrowers and are tightening underwriting standards. These changes in underwriting standards, reductions in available leverage, increases in interest rates and overall tightening of the supply of mortgage funds may prevent a sale or refinancing of one or more Projects and cause the Borrowers to fail to repay the Financings. This could negatively affect our ability to pay all interest and principal on the Debentures.

Competition with Other Lenders

Other entities, including banks, savings and loan associations, insurance companies, real estate investment trusts, pension funds, mortgage bankers, limited partnerships, corporations and other private lenders are engaged in making loans and otherwise having investment objectives similar in whole or in part to ours, will be competing with us for financing opportunities. An increase in the amount of funds available for loans, whether through new competitors entering the market or a reduction in the regulatory restrictions on existing lending institutions, which typically have a lower cost of capital than us, would increase competition and thereby could reduce the yield to lenders. Accordingly, although we believe that we will be lending in a niche market in which there currently is limited competition, there can be no assurance that we will be successful in making our intended Financings.

Risks Related to Title Insurance

To the extent a Borrower default occurs, among other potential risks is the possibility of mechanics liens or other claims being made on the title to the property. Even if the claim is insured, insurance companies may refuse to honor claims which could require us to litigate to enforce policies. Litigation is always uncertain and losses from title claims could occur.

Risks Relating to Our Operations and the Debenture Terms

No Guarantee or Security

The Debentures will be general recourse obligations of the Company. No assets of the Company will specifically secure the Debentures, and Holders will not have a security or other interest in any of the Financings or the Projects. The Debentures will not be guaranteed by any person or entity.

Subordinated Obligations

HSF had $71,065,263 of indebtedness outstanding as of September 30, 2017. The Debentures will be subordinate to the Company’s existing indebtedness as well as our future indebtedness that is not by its terms subordinate to or pari passu with the Debentures. There is no limitation on the amount of indebtedness that we may incur which is senior in right of payment to the Debentures. The Bank Loans are, and future senior indebtedness will likely be, guaranteed either directly by us, indirectly by our subsidiaries, and/or other affiliated entities. The Debentures will be general unsecured obligations ranking effectively junior in right of payment to all existing and future secured Bank Loans to the extent of the value of the collateral securing such Bank Loans. If the Company or a subsidiary is declared bankrupt, becomes insolvent or is liquidated or reorganized, any secured Bank Loans will be entitled to be paid in full from assets securing such Bank Loan before any payment may be made with respect to the Debentures. Holders of the Debentures will participate ratably in our remaining assets with all holders of unsecured indebtedness that does not rank junior to the Debentures, including all of our other general creditors, based upon the respective amounts owed to each holder or creditor. In any of the foregoing events, there may not be sufficient assets to pay amounts due on the Debentures. As a result, Holders of the Debentures would likely receive less, ratably, than holders of secured Bank Loans.

In addition, because our current and future subsidiaries are not guaranteeing the Debentures, the creditors, if any, of such subsidiaries will have claims with respect to the assets of such subsidiaries that rank structurally senior to the Debentures. In the event of any distribution or payment of assets of such subsidiaries in any dissolution, winding up, liquidation, reorganization or other bankruptcy proceeding, the claims of those creditors must be satisfied prior to making any such distributions or payments to us in respect of its direct or indirect equity interests in such subsidiaries.

Our Operations Depend Significantly on the Success of the Outstanding Portfolio

Even if the Maximum Offering Amount is raised and all Offering Proceeds are used to make new Financings, our financial success will depend heavily on the results of the Financings. Our ability to pay interest and principal on the Debentures, therefore, will depend upon the extent to which we are paid amounts due under the Financings.

No Sinking Fund

The Holders of the Debentures have the right, subject to certain limitations as set forth in the Debenture Purchase Agreement, to request that their Debentures be liquidated prior to the Maturity Date thereof. We will not establish a sinking fund for the liquidation of the Debentures. There can be no assurance that we will have sufficient funds to repurchase a Holder’s Debentures in the event such Holder requests liquidation. See “Description of the Debentures – Redemption at the Option of Holders.”

No Minimum Offering Amount or Escrow; Diversification Risk

There is no minimum offering amount and no escrow provision for the Offering Proceeds. Accordingly, the Offering Proceeds will be immediately available to the Company upon acceptance of each investor’s subscription. If a limited amount of funds is raised through the Offering, then we may not have sufficient funds to (i) fund new Financings, (ii) make advances of funds to protect our investments in the existing Financings if a borrower defaults on mortgage payments to cover various costs and expenses resulting from such default, including legal fees, in enforcing and pursuing our rights and remedies under the loan documents and to provide protective advances to complete the construction of the property in the unlikely event that HSF forecloses on the Project, (iii) pay down amounts due under Bank Loans, or (iv) pay costs associated with the management and making of the Financings and this Offering. In addition, if less than the Maximum Offering Amount is sold by the Offering Termination Date, we may only be able to make a limited number of new Financings and would be less diversified than would be the case if a larger aggregate principal amount of the Debentures were sold. As a result, there may be less diversification in our portfolio of Financings than would be the case if the Maximum Offering Amount was sold. A limited number of Financings may place a substantial portion of the Offering Proceeds in the same geographical location with the same Project related risks. In that case, the decline in a particular real estate market could substantially and adversely impact the operating results of the affected Projects and the Borrowers’ ability to repay all amounts owed to the Company under the terms of the applicable Financings. A more diversified investment portfolio would not be impacted to the same extent upon such an occurrence.

Use of Proceeds to Pay Offering Expenses

A portion of the Offering Proceeds will be used to pay Offering Expenses and the Selling Commissions and Expenses. Thus, the gross amount of the Offering Proceeds will not be available for the purposes set forth in this Memorandum. See “Estimated Use of Proceeds.”

Dividends and Distributions to Members

During the term of the Debentures, the Company may make distributions to its sole member, provided that no such distribution would cause the Company’s net equity to be less from $75 million. Any such amounts distributed to our member will reduce the amount available for repayment of the Debentures.

Loss of Uninsured Deposits

HSF has deposit bank accounts at more than one bank and may open additional accounts at other financial institutions, including credit unions and savings and loan associations. In most cases, the Federal Deposit Insurance Corporation (the “FDIC”) and the National Credit Union Share Insurance Fund (the “NCUSIF”) only insure deposits up to $250,000 per depositor per insured institution. We currently have, and anticipate in the future we may have deposits at financial institutions in excess of the FDIC and NCUSIF limits and the failure of any such financial institution would result in the loss of our deposits in excess of the applicable FDIC and NCUSIF limits.

Reliance on Management; Loan Committee

All decisions regarding the business and operations of the Company will be made exclusively by the Manager. Accordingly, you should not purchase the Debentures unless you are willing to entrust all aspects of management to the Manager or its successor(s). We created a Loan Committee, which will determine which Financings we will make (the “Loan Committee”). The current members of the Loan Committee are Craig Hall, Richard Hyman, and Donald Braun, but the number and identity of the members may be changed by the Company at any time in its sole discretion. You must carefully evaluate the personal experience and business performance of the management of the Company, including the Loan Committee members. There can be no assurance that our management will be successful in selecting, managing and servicing the Financings. See “Management.”

Dependence on Key Personnel

Our success is substantially dependent on the management team and its ability to identify and consummate suitable Financings, to improve the operating performance of existing Financings and, if necessary, to dispose of investments at a profit. Should one or more of these individuals become incapacitated or in some other way cease to be part of the management team, our performance could be adversely affected. There can be no assurance that any of these individuals will continue to be affiliated with us throughout the term of the Debentures. The Holders will have no protection against any such key personnel ceasing to be part of the management team, and we are under no obligation to terminate our operations and liquidate the Debentures in the case of such departure.

Future Investments Unspecified

As of the date of this Offering Circular, no new Financings have been identified with certainty. The Holders will, therefore, be relying on the ability of our Manager to select the investments to be made using the Offering Proceeds.

Lack of Management Rights

The Holders will have no opportunity to control our day-to-day operations, which will be the responsibility of our Manager, including lending and disposition decisions. Consequently, the Holders will generally not be able to evaluate for themselves the merits of particular loans or dispositions prior to their completion.

Limitation of Liability; Indemnification of Management

Our Manager and its attorneys, agents and employees may not be liable to us for errors of judgment or other acts or omissions. In addition, we may indemnify the Manager against suits or proceedings based upon its position as our Manager. A successful claim for such indemnification could deplete our assets by the amount paid.

Reliance on Affiliates for Financial Guarantees

Historically, the Bank Loans have been guaranteed in whole or in part by affiliated entities, Hall Phoenix Inwood, Ltd. (“HPI”) and Search Financial Services, LP (“Search”), both of which are controlled by the majority shareholder of our sole member (the “Majority Shareholder”), and in certain instances by the Majority Shareholder. While not anticipated at this time, HPI, Search, and the Majority Shareholder may not be willing to continue to guarantee future Bank Loans or other debt of the Company. In such instance, there is no guarantee that lenders will be willing to provide Bank Loans without the guarantees of HPI, Search, and/or the Majority Shareholder, or the terms and conditions under which they would be willing to provide the Bank Loans. Therefore, obtaining the Bank Loans to increase our overall returns on its net investment in each Financings could become more difficult.

In addition, HPI, Search, and the Majority Shareholder have various requirements and covenants in connection with existing Bank Loans they have guaranteed that require them, among other things, to maintain certain financial covenants. Financial covenants as they apply to HPI, Search, and the Majority Shareholder vary by each individual Bank Loan and include the requirements to maintain (i) a minimum amount of net worth, (ii) a minimum amount of unencumbered cash and/or marketable securities, (iii) and debt and leverage ratios below certain percentages. If these obligations are not satisfied, HPI, Search, and/or the Majority Shareholder may breach the covenants in one or more of the Bank Loans thereby potentially causing a default under the applicable Bank Loan(s).

No Guaranteed Return

There is no assurance or guarantee that our cash flow, profits and capital will be sufficient to repay our liabilities owed under the Bank Loans or to pay all interest and principal on the Debentures.

Risks Related to Compliance and Regulation

Reduced disclosure requirements under Regulation A may make our Debentures less attractive to investors as compared to a traditional initial public offering.

As a Tier 2 issuer, we will be subject to scaled down disclosure and reporting requirements, which may make our Offering less attractive to investors as compared to a traditional initial public offering. An investment in our Debentures may be less attractive to investors who are accustomed to enhanced disclosure and more frequent financial reporting. In addition, given the relative lack of regulatory precedence regarding the recent amendments to Regulation A, there is a significant amount of regulatory uncertainty with regard to how the SEC or the individual state securities regulators will regulate both the offer and sale of our securities, as well as any ongoing compliance to which we may be subject. If our scaled down disclosure and reporting requirements, or regulatory uncertainty regarding Regulation A, reduces the attractiveness of our Debentures, we may be unable to raise the necessary funds necessary to develop a diversified portfolio of Financing, which could severely affect our ability to repay the Debentures.

Our reliance on Regulation A for this Offering may make it more difficult to raise capital as and when we need it, as compared to if we were conducting a traditional initial public offering.

Because of the exemptions from various reporting requirements provided to us under Regulation A and because we are only permitted to raise up to $50,000,000 in any 12-month period under Regulation A (although we may raise capital in other ways), we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

There may be deficiencies with our internal controls that require improvements.

As a Tier 2 issuer, we will not need to provide a report on the effectiveness of our internal controls over financial reporting, and we will be exempt from the auditor attestation requirements concerning any such report so long as we are a Tier 2 issuer. We are in the process of evaluating whether our internal control procedures are effective and, therefore, there is a greater likelihood of undiscovered errors in our internal controls or reported financial statements as compared to issuers that have conducted such evaluations.

The Company’s income may be reduced if it is required to register as an investment company under the Investment Company Act; if we or our subsidiaries become unregistered investment companies, we could not continue our business.

Neither we nor any of our subsidiaries intends to register as investment companies under the Investment Company Act of 1940, as amended (Investment Company Act). If we or any of our subsidiaries were obligated to register as investment companies, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

Under the relevant provisions of Section 3(a)(1) of the Investment Company Act, we will not be deemed to be an "investment company" if:

We believe that we and our subsidiaries satisfy both tests above. With respect to the 40% test, the entities through which we make our loans are wholly owned subsidiaries that are not themselves investment companies and are not relying on the exceptions from the definition of investment company under Section 3(c)(1) or Section 3(c)(7).

We believe our wholly owned subsidiaries may rely on Section 3(c)(5)(C) of the Investment Company Act for an exception from the definition of an investment company. The SEC staff’s position on Section 3(c)(5)(C) generally requires that an issuer maintain at least 55% of its assets in "mortgages and other liens on and interests in real estate," or qualifying assets; at least 80% of its assets in qualifying assets plus real estate-related assets; and no more than 20% of the value of its assets in other than qualifying assets and real estate-related assets, which we refer to as miscellaneous assets.

To maintain compliance with the Investment Company Act, our subsidiaries may be unable to sell assets we would otherwise want them to sell and may need to sell assets we would otherwise wish them to retain. In addition, our subsidiaries may have to acquire additional assets that they might not otherwise have acquired or may have to forego opportunities to make investments that we would otherwise want them to make and would be important to our investment strategy. Moreover, SEC staff interpretations with respect to various types of assets are subject to change, which increases the risk of non-compliance and the risk that we may be forced to make adverse changes to our portfolio.

If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement and a court could appoint a receiver to take control of us and liquidate our business.

Hotel Industry Risks

A substantial majority of the amounts outstanding under the Outstanding Loans are comprised of loans secured by hotel properties. While many of the following risk factors apply to commercial real estate projects across a broad spectrum of use and type, the risk factors below enumerate and expand on the significant risks associated with the ownership and operation of hotel properties.

Operating Risks

The Outstanding Loans are currently concentrated in hotels, which are subject to operating risks common to the hotel industry. These risks include, among other things: (i) competition for guests from other hotels as well as other competitors for the traveler’s accommodations including Airbnb and VRBO, a number of which may have greater marketing and financial resources and experience than the operator(s) of the hotels underlying the Outstanding Loans; (ii) increases in operating costs due to inflation and other factors, which increases may not have been offset in past years, and may not be offset in future years, by increased room rates; (iii) dependence on business travel and tourism, which are industries that may fluctuate and be seasonal; (iv) increases in energy costs and other expenses of travel, which may deter travelers; (v) adverse effects of general and local economic conditions; and (vi) the construction of more hotel rooms in a particular area than needed to meet demand. These factors could adversely affect the ability of the Borrowers to generate revenues from the hotels. In addition, in connection with the acquisition or foreclosure of hotels, it may not be possible to transfer certain operating licenses, such as food and beverage licenses, or to obtain new licenses in a timely manner in the event such licenses cannot be transferred, either by Borrowers, the Company or otherwise. The failure to have alcoholic beverages licenses or other operating licenses could adversely affect the ability of the hotels to generate revenue. To the extent we provide loans secured by other real estate types such as condominiums, multifamily projects, commercial office properties, student housing projects many of these same operating risks apply including (i) competition for tenants, buyers, and renters, from other real estate owners and developers a number of which may have greater marketing and financial resources and experience than the operator(s) of the properties underlying the Outstanding Loans; (ii) increases in operating costs due to inflation and other factors, which increases may not have been offset in past years, and may not be offset in future years, by increased rent, or purchase prices; (iii) dependence on business general business conditions both locally as to the location of the project and on a macro basis affecting the country as a whole that may fluctuate; (iv) increases in energy costs and other expenses of travel, which may deter travelers; (v) adverse effects of general and local economic conditions; and (vi) the construction of more properties of the same or similar type as the property securing a loan than needed to meet demand.

Risks Relating to Franchise Rights

In the event any of the hotels underlying the Outstanding Loans lose any licenses, franchises or permits related to their operations, such hotels may not be able to continue operations or may only be able to operate in a limited capacity or as an independent hotel. There can be no assurance that the hotels will operate under a nationally or regionally recognized franchise or any franchise. In addition, the failure to comply with franchisor requirements and restrictions or a default under any franchise agreement may cause the affected hotels to experience significant operating deficiencies and monetary losses. Further, franchise agreements sometimes require the franchisor’s approval for any sale or transfer of the hotel and, in such cases if such required approval is not obtained, it may be difficult or impossible for the hotels underlying the Financings to be sold or transferred without breaching one or more franchise agreements.

General Risk of Investments in Hotel Real Estate

The hotel Projects will be subject to a number of risks, including:

The value of each Project is affected significantly by its ability to generate cash flow and net income, which in turn depends on the amount of income that can be generated net of expenses required to be incurred with respect to the Project. Many expenditures associated with the Projects (such as operating expenses and capital expenditures) cannot be reduced when there is a reduction in income from the Projects.

Operating Costs and Capital Expenditures

Property operations involve operating expenses that are subject to fluctuations due to a variety of factors, including wage and benefit costs, repair and maintenance expenses, gas and electricity costs, insurance costs and other miscellaneous expenses. A significant fluctuation in any one of these expenses could adversely affect the financial performance of hotels and other property types and, thus, the ability of Borrowers to make required payments on the Financings. Additionally, hotels and other property types generally have an ongoing need for renovations and other capital improvements, particularly in older structures, including periodic replacement or refurbishment of furniture, fixtures and equipment. Renovation of hotels and other property types involves certain risks, including the possibility of environmental problems, construction costs overruns and delays, uncertainties as to market demand or deterioration in market demand after commencement of renovation and the emergence of unanticipated competition from competing properties. If capital expenditures exceed expectations, the additional cost could have an adverse effect on the respective Borrower’s business, which could impact their ability to pay us all amounts due under the Financings.

Seasonality

The hotel industry is seasonal in nature. Some seasons may be more profitable for certain hotels than for others. Seasonal variations can be expected to cause fluctuations in the revenue generated by the hotels.

Federal, State and Local Regulation

The hotel industry and other property types are subject to various federal, state and local regulations, including building and zoning requirements, all of which can increase the cost of operating hotel facilities. In addition, the property operators are subject to laws governing their relationship with employees, including minimum wage and overtime payment requirements and rules pertaining to working conditions. Increases in benefit costs or other costs associated with employees will increase operating costs and, in turn, could adversely affect the operating results of the hotels and the ability of Borrowers to make required payments on the Financings.

Noncompliance with Tied-House Restrictions

Our affiliates are engaged in the wine industry. State and federal laws, known as “tied-house” laws, prohibit certain relations between manufacturers, wholesalers and retailers of alcoholic beverages, including wine. These laws generally prohibit manufacturers, wholesalers and retailers from having any overlapping ownership or other prohibited relationship between those engaged in different levels of the alcoholic beverage industry.  There is some uncertainty as to the application of the law. However, should we foreclose on a hotel property, compliance with applicable “tied-house” laws could increase operating costs and create operational uncertainty.

Volatility of Real Estate Industry

The real estate industry is a volatile industry and hotels in particular are subject to greater risk than that typically associated with an investment in other types of real estate. The Outstanding Loans secured by hotels are subject to these heightened risks.

Real Estate and Financing Risks

Use of Borrowed Money to Fund Financings; Recourse Financing

HSF anticipates making Financings using the proceeds from Bank Loans. Each Bank Loan is anticipated to be paid off at the end of the term of the applicable Financing. We have historically obtained Bank Loans either directly or indirectly through a subsidiary at approximately 75% of the gross amount of Financings secured by first mortgage liens, with payment of such Bank Loans guaranteed directly by us, our subsidiaries, and/or other affiliated entities. We anticipate that we will obtain new Bank Loans at approximately 75% of the commitment amount of any new Financings secured by first mortgage liens. We have typically obtained Bank Loans on a loan by loan basis. Bank Loans are generally secured through the collateral assignment of our first lien mortgage loans and any second lien mortgage loans as may be applicable to the respective lenders of such Bank Loans. There can be no assurance that we will be able to obtain new Bank Loans. A default on any of the Financings securing the Bank Loans may cause a default under the terms of such Bank Loans, which, if not cured, could also cause defaults on other Bank Loans secured by other Financings. Further, there can be no assurance that the maturity dates of the Bank Loans will match the maturity dates of the Financings securing such Bank Loans. Bank Loans could come due prior to the Financing securing such Bank Loans. Failure to pay the Bank Loans in full upon maturity could result in a default under the Bank Loans. Any adverse events arising out of the various default and cross default provisions under the Bank Loans and the discrepancy between the maturities of the Bank Loans and related Financings could negatively impact our ability to pay interest and principal on the Debentures.

Financial Covenants

HSF has various requirements and covenants in connection with existing Bank Loans that require us to, among other things, maintain certain financial covenants. Financial covenants vary by each individual Bank Loan and may include requiring us to maintain (i) a minimum amount of net worth, (ii) a minimum amount of unencumbered cash and marketable securities, (iii) debt service coverage ratios which are specific to underlying properties securing our Loans, and (iv) debt and leverage ratios below stated levels. If these covenants and obligations are not satisfied, we may breach the covenants in one or more of the Bank Loans.

Availability of Financing and Market Conditions

The Projects securing the Financings may require additional capital in order to avoid foreclosure, to refinance, or for other reasons, and the Borrowers may need to borrow such funds from sources other than us. Prevailing capital market conditions at the time financing is sought may make such financing difficult or costly to obtain. The current number of lenders and amount of money generally available to finance real estate has been limited. Based on historical interest rates, current interest rates are low and, as a result, interest rates available for future real estate loans and refinancings may be higher than the current interest rates for such loans, which may have a material and adverse impact on the Projects and the Borrowers. The failure to obtain such loans or to refinance on favorable terms could negatively impact the Borrowers’ businesses and their ability to repay all amounts owed to us under the terms of the Financings. This would negatively affect our ability to pay interest and principal on the Debentures.

General Risk of Investments in Real Estate

Our economic success will depend upon, among other things, the ability of the Borrowers to pay all amounts due on the Financings or our ability to recover an amount equal to the Financings in the event of defaults under the Financings, all of which will largely depend upon the results of operations of the Projects. The Projects will be subject to those risks typically associated with investments in real estate. Fluctuations in construction costs, occupancy rates, rent schedules and operating expenses, among other factors, can adversely affect operating results and render the sale or refinancing of a Project difficult or unattractive. No assurance can be given that any real estate investment, including the Projects, can be sold or refinanced at amounts that will provide for the repayment of the Financing. The failure of the Borrowers to sell or refinance the Projects or, in the event of a default under a Financing, the failure of the Company to recover amounts which provide for the repayment of the Financings could adversely affect our ability to pay interest and principal on the Debentures. Factors that could affect the value of such real estate investments and that are generally beyond our control and the Borrowers include the validity and enforceability of leases, vacancy rates, financial resources of tenants, rent levels and sales levels in the local areas of such investments; adverse changes in local population trends, market conditions, neighborhood values, local economic and social conditions, supply and demand for property, competition, interest rates and real estate tax rates; governmental rules, regulations and fiscal policies, including the effects of inflation and enactment of unfavorable real estate, rent control, environmental or zoning laws, hazardous material laws, uninsured losses and other risks. The Projects are subject to additional risks, including the lack of environmental indemnity for the Project owner(s), changes in land use or other regulations affecting the Projects, the risk of uninsured losses, limited or no representations and warranties from the seller of a Project, competition, and acts of nature such as earthquakes, floods and tornados.

Uncertain Economic Conditions

The U.S. economy is experiencing a slow recovery after the significant downturn during 2008-2010, which was one of the worst credit and liquidity crisis since the 1930s. In addition, availability of credit was severely limited and remains limited today. It is possible that we will not be able to obtain financing when needed. Further, recent world events evolving out of increased terrorist activities and the political and military responses of the targeted countries have created an air of uncertainty concerning security and the stability of world and United States economies. Historically, successful terrorist attacks have resulted in decreased travel and tourism to the affected areas, increased security measures and disturbances in financial markets. It is impossible to determine the likelihood of any future terrorist attacks on United States targets, the nature of any United States response to such attacks or the social and economic results of such events. However, any negative change in the general economic conditions in the United States could adversely affect our business activities and profitability, which could result in our inability to pay all interest and principal on the Debentures. Specifically, the hotel and condominium sectors could be more adversely affected by a prolonged recession than other sectors. To the extent negative economic events adversely and directly affect Borrowers for such Projects, we may suffer losses. There can be no assurance that the Borrowers will be able to pay us all amounts due or that we will not lose money on our investments. There can also be no assurance that we will be profitable in the future and able to pay all principal and interest on the Debentures. There can also be no assurance that our underwriting standards were or will be sufficient to avoid the risks inherent in the economic downturn.

Construction Risks

It is anticipated that we will originate construction loans allowing Borrowers to use proceeds of the Financings to develop, redevelop, and construct office, hotel, and multifamily properties, as well as other types of property. Construction and development projects are subject to various risks and uncertainties, some of which will be outside of our control and the Borrowers, including conditions of supply and demand, weather conditions, natural disasters, delays in construction schedules, cost overruns, changes in government regulations, increases in real estate taxes, insurance costs, changes in interest rates, design flaws and the availability of materials and labor. There can be no assurance that the Borrowers will have sufficient funds to make-up any shortfalls, or that they will be able to borrow such funds. If applicable warranties do not cover all of the expenses associated with any construction defects that may arise, the Borrowers could be liable for the expenses associated with correcting the construction defect. In addition, constructed projects are sometimes subject to construction defect claims that only reveal themselves over time, and the Borrowers could be liable for the expenses associated with correcting such construction defects, which could adversely affect the Borrowers’ businesses and their ability to repay all amounts owed to us under the Financings.

Illiquidity of Our Assets

HSF holds numerous illiquid assets. The Outstanding Loan portfolio is composed of illiquid assets insofar as our ability to accelerate payments is limited to certain circumstances. In addition, we have a limited ability to vary our Outstanding Loan portfolio in response to changes in economic or other conditions. The market of potential purchasers of the Outstanding Loan portfolio is unknown and will likely change under different market circumstances.

Potential Lack of Historical Results and Audited Financial Statements for the Projects

The Projects will be funded in whole or in part by the Financings. If the Projects experience financial difficulties, then the Borrowers may not be able to pay us all amounts due under the terms of the Financings. Projects funded by the Financings may have limited historical operating results on which future operating results may be projected or no operating results in the case of construction financing. Furthermore, the Financings typically do not require the Borrower to provide audited financial statements or audited results of operations for the Projects and rather may only require the Borrower to provide unaudited financial information. Consequently, there may be uncertainty regarding the accuracy of the financial information being provided by the Borrower. In addition, certain Projects may not have any operating history to review.

Proceeds from Projects to Pay the Financings

We anticipate that the Borrowers will rely on the financial success of the Projects to repay the Financings, and this will impact our ability to recover sufficient amounts from Borrowers and Projects in the event of a default under a Financing. To the extent the Borrowers’ results of operations are negatively impacted by economic conditions or otherwise, the Borrowers may not have sufficient funds to repay all amounts owed to us under the terms of the Financings, which may negatively affect our ability to pay interest and principal on the Debentures.

Possible Delays in Sale; Refinancing of the Projects

If Projects funded under the Financings experience financial difficulties, then the Borrowers may not be able to pay us all amounts due under the terms of the Financings. We will not control the length of time that a Borrower holds a Project before initiating a disposition event, such as a sale. Borrowers may not be able to sell the Projects at the time they plan. If a Project is not sold as anticipated, the Borrower will likely seek to refinance the Financing and any other loan encumbering the Project. Fluctuations in the supply of money for such loans may affect the availability and cost of loans, and we are unable to predict the effects of such fluctuations on the ability of a Borrower to refinance a Project, either with us or through other lenders. Prevailing market conditions at the time the Borrowers seek to refinance may make such financing difficult or costly to obtain. Such conditions may also adversely affect the cash flow and profitability of the Borrowers, all of which could negatively impact the Borrowers’ businesses and their ability to repay all amounts owed to us under the terms of the Financings. This would negatively affect our ability to pay interest and principal on the Debentures.

Risks Relating to Potential Conflicts of Interest

Fees for Services

Our affiliates may have one or more contractual relationships to provide services to us and therefore will be entitled to receive certain fees in connection with such contractual relationship.

Obligations to Other Entities

Conflicts of interest will occur with respect to our obligations to the Holders, as opposed to the obligations of the Manager and its affiliates to the other business ventures in which our affiliates may participate. The Manager will, therefore, have conflicts of interest in allocating management time, services and functions among these existing companies and businesses, as well as any companies or business entities which may be organized in the future. However, the Manager believes that it has the capacity to discharge its responsibilities to the Holders notwithstanding its obligations to these other entities and its participation in other business ventures.

Company Counsel

Winston and Strawn LLP (“Winston Strawn”) has been appointed as our counsel in connection with the Offering. No independent counsel has been retained to represent the Holders. Prospective investors should seek their own legal, tax and financial advice before making an investment in the Debentures. In assisting in the preparation of this Offering Circular, Winston Strawn has relied on information provided by us and certain of our other service providers (including, without limitation, the principals’ biographical data, summaries of market conditions, our investment strategy and our performance, its investments or any predecessor in interest) without verification and does not express a view as to whether such information is accurate or complete.

Resolution of Conflicts of Interest

HSF has not developed, and does not expect to develop, any formal process for resolving conflicts of interest. While the foregoing conflicts could materially and adversely affect us and the Holders, the Company, in its sole judgment and discretion, will try to mitigate such potential adversity by the exercise of its business judgment in an attempt to fulfill its fiduciary obligations. There can be no assurance that such an attempt will prevent adverse consequences resulting from the numerous conflicts of interest.

Risks Relating to this Offering

Speculative Investment

Our business objectives must be considered as speculative, and there is no assurance that we will satisfy those objectives. No assurance can be given that you will realize the anticipated return on your purchase of the Debentures, if any, or that you will not lose your investment completely. For this reason, you should read this Offering Circular and all exhibits to this Offering Circular carefully and should consult with your attorney or business advisor.

Investment by Tax-Exempt Purchasers

In considering an investment in the Debentures by a trust of a pension or profit-sharing plan qualified under Code Section 401(a) and exempt from tax under Code Section 501(a), a fiduciary should consider (i) that such plan, although generally exempt from federal income taxation, would be subject to income taxation were its income from an investment in the Debentures and other unrelated business taxable income to exceed $1,000 in any taxable year, (ii) whether an investment in the Debentures is advisable given the definition of plan assets under ERISA and the status of Department of Labor regulations regarding the definition of plan assets, (iii) whether the investment is in accordance with plan documents and satisfies the diversification requirements of Section 404(a) of ERISA, (iv) whether the investment is prudent under Section 404(a) of ERISA, considering the nature of an investment in the Debentures, and the potential lack of liquidity of the Debentures, (v) whether the Company or any affiliate is a fiduciary or party in interest to the plan. See “Federal Income Tax Consequences.”

Issuer of Securities for Other Offerings; Leverage

HSF may make additional securities offerings in the future. If an investor in another offering seeks rescission or otherwise brings a claim against us as the issuer of such securities, our financial condition could be adversely affected, thereby affecting our ability to pay interest and principal on the Debentures. In addition, the issuance of additional debt securities by us could increase our debt-to-asset ratio. We may also obtain additional financing for new Financings, which could increase our debt-to-asset ratio. We may also obtain additional Bank Loans for new Financings, which could increase our debt-to-asset ratio. We have various financial covenants in connection with existing Bank Loans provided to us which provide for certain restrictions on our debt-to-asset ratio. Although none of the current covenants directly restrict us from making future debt or equity offerings or obtaining additional Bank Loans secured by new Financings, if the value of the Financings deteriorate, then our debt-to-asset ratio may exceed its permitted level causing us to be in default under the Bank Loans.

Lack of Firm Commitment Underwriting

HSF is offering the Debentures on a “best-efforts” basis directly through the Company and through the Selling Group. As a result, there can be no assurance that the Maximum Offering Amount will be sold, which may limit our ability to pursue all of our objectives for the use of the Offering Proceeds. As a result, we may not be able to achieve the results of operations that we may otherwise achieve with a greater amount of capital. This could adversely affect our ability to pay interest and principal on the Debentures.

Certain Tax Related Risks

Complexity of Taxation

The tax aspects of an investment in the Debentures are complicated and complex and each investor should have them reviewed by professional advisors familiar with such investor’s personal tax situation and with the tax laws and regulations applicable to the investor. In addition, we may take positions with respect to certain tax issues which depend on legal conclusions not yet resolved by the courts. Should any such positions be successfully challenged by the Internal Revenue Service (the “IRS”), or another applicable taxing authority, there could be a materially adverse effect on a Holder, and a Holder might be found to have a different tax liability for that year than that reported on its income tax returns.

Characterization as Equity Rather Than Debt

Although we intend to treat the Debentures as indebtedness for all purposes, state law characterization of an instrument as debt may differ from the characterization of the instrument for federal income tax purposes. If it were determined that the Debentures should be treated for federal income tax purposes as an equity investment in the Company instead of as an indebtedness, the changes in the tax consequences to Holders might be significant and adverse. If the Debentures were treated as equity for tax purposes, Holders would be taxed as members of the Company. The tax treatment of members of a limited liability company is substantially different than the tax treatment of lenders. If the Holders were treated as members, their income would not be treated as interest income on the Debentures.

Tax Changes

Significant legislative and budgetary proposals affecting tax laws are made by the legislative and executive branches of the U.S. federal government from time to time. The likelihood of enactment of any such proposals into law is uncertain. The enactment of any such proposals, including subsequent proposals, into law could have material adverse effects on the Company and/or the Holders.

Tax Advice

Because the tax aspects of the Offering are complex and certain of the tax consequences may differ depending on individual tax circumstances, you should consult with and rely on your own tax advisor concerning the Offering’s tax aspects and your individual situation. No representation or warranty of any kind is made with respect to the acceptance by the IRS of the treatment of any item by the Company or by an investor.

PROSPECTIVE INVESTORS ARE STRONGLY URGED TO READ CAREFULLY THE SECTION BELOW ENTITLED “FEDERAL INCOME TAX CONSEQUENCES” FOR A DISCUSSION OF CERTAIN OF THE TAX CONSIDERATIONS INHERENT IN THE ACQUISITION OF DEBENTURES AND TO CONSULT THEIR OWN TAX ADVISORS.

PLAN OF DISTRIBUTION

The Offering

HSF is offering up to $50,000,000 of our Debentures pursuant to this Offering Circular. Our Debentures will be offered primarily directly by the Company’s and the Manager’s officers on an ongoing and continuous basis. The officers who will be offering the Debentures are not deemed to be brokers under Rule 3a4-1 of the Securities Exchange Act of 1934, as amended. In accordance with the provisions of Rule 3a4-1(a), officers who sell Debentures will not be compensated by commission, will not be associated with any broker or dealer and will limit their activities so that, among other things, they do not engage in oral solicitations of, and comply with certain specified limitations when responding to inquiries from, potential purchasers.

HSF will also use broker-dealers (the “Selling Group Members” and, collectively, the “Selling Group”) who are members of FINRA to sell the Debentures. The Debentures are being offered on a “best efforts” basis, which means generally that the Selling Group Members are required to use only their best efforts to sell the Debentures and they have no firm commitment or obligation to purchase any of the Debentures. This Offering will continue through the earliest of (1) December 31, 2018, (2) the date upon which all $50,000,000 in Debentures have been sold or (3) the date on which we terminate this Offering. Following qualification of the offering statement of which this Offering Circular is a part, the Company will conduct closings of this offering at its discretion which are referred to as the Closing Dates. On the Closing Dates, offering proceeds for the closing will be disbursed to the Company and the Debentures will be issued to investors.

Once the SEC qualifies this Offering, we are permitted to generally solicit investors nationwide by use of various advertising mediums, such as print, radio, TV, and the Internet. We plan to primarily use the Internet through a variety of existing Internet advertising mechanisms, such as adwords and search engine optimization (e.g., placement on Yahoo and Google). As a result, it is anticipated that Internet traffic will arrive at a section of our website where prospective investors, can find additional information regarding this Offering and may initiate a purchase of the Debentures in compliance with the Subscription Agreement.

Compensation Payable to Selling Group Members

Should sales be made by the Selling Group, Selling Group Members will receive selling commissions (the “Selling Commissions”) in an amount up to 5% of the purchase price of the Debentures sold by Selling Group Members (the “Broker Sales”); provided, however, that this amount will be reduced to the extent the Company negotiates a lower commission rate with a Selling Group Member and the commission rate will be the lower agreed upon rate. The Selling Group will also receive a non-accountable marketing and due diligence allowance equal to 1% of the Broker Sales. The total aggregate amount of commissions, allowances, expense reimbursements and placement fees (the “Selling Commissions and Expenses”) for sales of Debentures made by the Selling Group will not exceed 6% of the Broker Sales. The Company will be responsible for paying all Selling Commissions and Expenses.

This Offering Circular will be furnished to prospective investors upon their request via electronic PDF format and will be available for viewing and download 24 hours per day, 7 days per week on the Company’s website, as well as on the SEC’s website at www.sec.gov.

 In order to subscribe to purchase our Debentures, a prospective investor must electronically complete, sign and deliver to us an executed subscription agreement like the one attached to this Offering Circular as Appendix A, and wire funds for its subscription amount in accordance with the instructions provided therein.

An investor will become a Holder, including for tax purposes, and the Debentures will be issued, as of the date of settlement. Settlement will not occur until an investor’s funds have cleared and the Manager accepts the investor as a Holder.

We reserve the right to reject any investor’s subscription in whole or in part for any reason, including if we determine in our sole and absolute discretion that such investor is not a “qualified purchaser” for purposes of Section 18(b)(4)(D)(ii) of the Securities Act. If the offering terminates or if any prospective investor’s subscription is rejected, all funds received from such investors will be returned without interest or deduction. 

Who May Invest

Our Debentures are being offered and sold only to “qualified purchasers” (as defined in Regulation A under the Securities Act). As a Tier 2 offering pursuant to Regulation A under the Securities Act, this Offering will be exempt from state “Blue Sky” law review, subject to certain state filing requirements and anti-fraud provisions, to the extent that our Debentures offered hereby are offered and sold only to “qualified purchasers” or at a time when our Debentures are listed on a national securities exchange. “Qualified purchasers” include: (i) “accredited investors” under Rule 501(a) of Regulation D and (ii) all other investors so long as their investment in our Debentures does not represent more than 10% of the greater of their annual income or net worth (for natural persons), or 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). Accordingly, we reserve the right to reject any investor’s subscription in whole or in part for any reason, including if we determine in our sole and absolute discretion that such investor is not a “qualified purchaser” for purposes of Regulation A.  

Transferability of our Debentures

Our Debentures are generally freely transferable by Holders subject to any restrictions imposed by applicable securities laws or regulations. 

Advertising, Sales and other Promotional Materials

In addition to this Offering Circular, subject to limitations imposed by applicable securities laws, we expect to use additional advertising, sales and other promotional materials in connection with this Offering. In addition, the sales material may contain certain quotes from various publications without obtaining the consent of the author or the publication for use of the quoted material in the sales material. Although these materials will not contain information in conflict with the information provided by this Offering Circular and will be prepared with a view to presenting a balanced discussion of risk and reward with respect to our Debentures, these materials will not give a complete understanding of this Offering, us or our Debentures and are not to be considered part of this Offering Circular. This Offering is made only by means of this Offering Circular and prospective investors must read and rely on the information provided in this offering circular in connection with their decision to invest in our Debentures.

ESTIMATED USE OF PROCEEDS

The following table sets forth certain information about the estimated use of the proceeds of the Offering:

DESCRIPTION OF BUSINESS

General

HSF is a direct private real estate lender engaged in providing acquisition, bridge, and construction financing on a value-add basis for hotel, office, multifamily, condominium and mixed use and various other real estate projects located throughout the United States. We focus on debt financing opportunities that are underserved by the institutional markets. Our current emphasis is on providing non-recourse, first lien construction financing. Our loan programs are designed to provide an alternative for real estate investors and developers who cannot meet their financing needs through traditional lending programs. We offer flexible underwriting standards, creative loan structures and fast execution for ground-up construction, adaptive reuse, major asset repositioning and renovation projects. The Company intends to continue to pursue financing opportunities where its financial strength and real estate and capital market expertise will add value and facilitate the completion of value-added transactions.

Historically, Financings have been outstanding approximately two to three years, although extensions of the maturity dates of Financings have been granted, in some cases up to a total of five years, subject to certain conditions. The typical Financing amounts currently range from $13,000,000 to $50,000,000, but we have the option to make larger loans. Financings are structured as first mortgage loans secured by a first mortgage on the related Project at amounts that are generally between 55% and 75% of the total costs to develop the applicable Project.  The Financings are non-recourse to the Borrower, with standard carve out guarantees and completion guarantees on construction loans. The Financings generally require interest only payments during the primary term and provide for 12 to 18-month yield protection payments from Project completion.

We believe that we have differentiated ourselves in the marketplace by using and drawing on our principals’ extensive real estate and finance expertise, which allows us to efficiently assess opportunities and underwrite a broad range of Financings, and to be more creative in structuring transactions that provide us the proper security and collateral while also addressing the needs of the Borrowers. Key areas of emphasis in our underwriting of Financing opportunities include:

Both in our current form and through our predecessors, we have operated on strong operating principles and the long-standing business experience of our owners and executives. The Company is managed (through our Manager) by senior executives with an average of more than 30 years of direct industry experience, knowledge of all real estate asset classes across a broad range of geographic market areas and experience with both institutional and smaller entrepreneurial investors. Additionally, the Company is part of an affiliated group of entities known as HALL Group, the origin of which began 49 years ago by Craig Hall. HALL Group has expertise in real estate ownership, management, leasing, acquisition, disposition, and finance and has a broad range of other experience including vineyards and wineries, software development, commercial lending, and early stage venture capital. We can draw upon any of HALL Group’s expertise should we so require.

The HALL Group includes major operational areas including: HALL Park, the 17-building, 2,500,000 square foot, 162-acre office park in Frisco, Texas; HALL Arts, the three-phase, five-acre, mixed-use development in the Dallas Arts District; and HALL Art Collection, an immense collection of local and international art pieces located throughout HALL Group’s properties. Additionally, the affiliates, HALL Wines, located in St. Helena and Rutherford, produces highly-rated Bordeaux varietals, and WALT Wines, located in Napa Valley, produces hand-crafted Pinot Noir and Chardonnay varietals. HALL Wines employs high-density plantings and small vine viticulture combined with two cutting-edge, gravity-flow wineries to produce the highest quality wines, and now has three 100-point, perfect score vintages. Over the course of its 49-year history, HALL Group has collectively owned, managed and/or developed more than 100,000 apartments, five million square feet of commercial office space, numerous hotels, retail centers, residential land, software businesses and numerous venture capital companies.

We believe that we provide the following financial attributes:

Competitive Strengths

As a result of the “great recession” of 2008, banks, insurance companies and other traditional lenders became more conservative in their underwriting of commercial real estate loans. This combined with new regulations on real estate lending imposed upon banks and other financial institutions through Dodd-Frank and Basel III has particularly impacted the availability of, and willingness of such institutions to provide, construction loans. The result is that many banks and other financial institutions are only making construction loans at very low leverage levels, with existing proven customers. In fact, according to the “Emerging Trends in Real Estate 2017,” the 38th edition of PWC’s yearly survey, respondents identified construction loans as being the only vastly undersupplied form of debt funding. This is all notwithstanding the robust recovery that has and is occurring in the real estate industry, with real estate values now exceeding pre-recession levels.

We have identified this gap in the real estate capital markets as an opportunity. As a private lender, we are not required to adhere to the regulations imposed on the banking sector. While regulatory restraints limit the flexibility of many commercial lending institutions, we can capitalize on those opportunities and thrive outside the box. A private lender such as HSF can bring more to the table than money by providing real business expertise. Private lenders such as HSF can offer construction and other types of real estate loans with higher proceeds while remaining at moderate leverage levels, be more responsive to individual borrower needs in structuring individual loans, and close transactions faster than banks and other traditional financial institutions.

Conventional financing sources for commercial real estate loans under $50 million continue to be greatly reduced, due in large part to the increased regulatory limitations placed on traditional lenders, such as state banks and savings and loans, resulting from the lending crisis that occurred at the end of the last decade. As an example, prior to the financial crash in the latter part of the last decade, office developers could routinely obtain construction financing for office projects without preleasing in the 80% loan to construction cost range. Currently, only the strongest developers can obtain financing for such a project at greater than 50% loan to cost. Similar reductions have taken place on assets such as to-be-built hotels. The Company’s market presence, experience and reputation and the ability of our management team to underwrite a broad range of projects and structures, and flexibility to act quickly, should provide us the opportunity to take advantage of this favorable lending environment for our target loans.  See “Management.”

We believe that our lending strategy and operating model distinguish us from other lenders providing similar loans, including the following:

Our Business Activities

As of September 30, 2017, the Company, together with its predecessor operations, has originated approximately $700 million of Financings under 55 separate loan transactions. Through September 30, 2017, we have only experienced a loss of any portion of our principal on one of our Financings. As of September 30, 2017, we had outstanding first mortgage loans secured by 15 properties (the “Outstanding Loans”) representing approximately $328 million in loan commitment amounts. As of September 30, 2017, we have approximately $102 million due and outstanding on Outstanding Loans. In addition, Bank Loans are either borrowed by us directly or indirectly by subsidiaries with the Bank Loans being guaranteed by the Company, our subsidiaries, and/or other affiliated entities.

The table below summarizes HSF’s historical internal rates of return as of September 30, 2017 as to all loans which have gone full cycle through payoff or sale of the Project in those few instances where we had to foreclose on the Financing. The IRR table set forth below reflects past performance. The information in this table has been subjected to certain agreed upon procedures performed by our accounting firm, in accordance with attestation standards established by the American Institute of Certified Public Accountants, which included the confirmation of the definition and components used to calculate the IRRs, the recomputation of the IRRs, and confirmation of the loan descriptions and completeness of loans included on the schedule with the annual financial statement audits of the Company from its inception date (January 14, 2013) through December 31, 2016 and their review of the financial statements for the period from January 1, 2017 through September 30, 2017. No exceptions were noted as a result of these procedures, as outlined in their report. They were not engaged to and did not conduct an audit, examination or review of the schedule. Past performance is not indicative, nor is it a guaranty of future results and no assurances can be given that the future investments by us will generate a profit, or what level of profit, if any.

Schedule of Historical Internal Rates of Return

* All Represent Weighted Averages, excluding Laredo

⁽¹⁾ The Company funded $1,000 to borrower, who prepaid the loan and paid over $600,000 in prepayment fees. This resulted in an exceptionally high IRR, therefore we did not list nor include it in the weighted-average IRR.

The table below summarizes our outstanding Financings as of September 30, 2017.

HSF Loan Commitments

⁽¹⁾ U/C represents Under Construction.

⁽²⁾ Each loan provides for extension provisions from the maturity date based on criteria provided as to each Financing.

Recent Developments

Since September 30, 2017, the Company has continued to experience strong demand for new financing opportunities.  Specifically, we have closed an aggregate of $113.95 million of new loans consisting of the following loans:  (1) a $22.8 million first mortgage loan secured by a to-be-developed Hyatt Place located in downtown Houston, Texas which is being developed as part of an adaptive re-use of an office building having historic designation; (2) a $54.75 million first mortgage loan secured by a to-be-developed Hyatt Andaz hotel located in Palm Springs, California; (3) a $17.25 million first mortgage loan secured by a to-be-developed Cambria Suites hotel located in Charleston, South Carolina; and (4) a $19.15 million first mortgage loan secured by a to-be-developed boutique hotel (the Gale Hotel) located in Ft. Lauderdale, Florida. The Company received an aggregate of $2.28 million in loan origination fees on these new loans based on our customary 2.0% loan origination fee.

Loan Pipeline

The Company is seeing continued demand for its Financings from prospective borrowers. As of the date of this Offering Circular, we had seven loan applications, representing approximately $113,000,000 in prospective new loan commitments (the “Pipeline Loans”). For all of the Pipeline Loans, HSF has received an executed application letter from the prospective borrowers and/or sponsors of the underlying projects setting out the terms and conditions of the loans being considered, including, without limitation, the interest rate, repayment terms, guaranties, borrower equity requirements, prepayment provisions and a provision providing HSF the exclusive right to provide the financing for a period of 90 days. HSF has commenced its due diligence and approval process as to each Pipeline Loan. HSF has also received a deposit for each Pipeline Loan from the applicable prospective borrower and/or sponsor of not less than $25,000 to cover expenses incurred by HSF in connection with its due diligence such as travel costs for site inspection, an appraisal report, environmental reports, engineering reports and other direct out-of-pocket costs incurred by HSF. Notwithstanding the foregoing, there can be no assurance that the Pipeline Loans will ultimately meet HSF's approval standards, or will otherwise be closed and originated.

Bank Loans

We have typically obtained Bank Loans on a loan by loan basis to increase our funds available for Financings. Take for example a Project for which the total cost was $10 million, and the amount of our Bank Loan was $7.5 million.  The interest rate on our Financings are typically between 8.75% and 10.0% over 30-day LIBOR (or between 10% and 11.25% at the current 30-day LIBOR rate of 1.25%).  Bank Loans are typically obtained in an amount of 70% to 80% of the amount of each of our Financings, which in our example would provide us with the capacity to lend an additional amount of between $5.25 million and 6.0 million.  The Company would then receive additional lending proceeds the amount of the spread between the interest rate on the Bank Loan (typically between 3.0% and 3.75% over 30-day LIBOR or between 4.25% and 5.00% at the current 30-day LIBOR rate of 1.25%) and the interest rate we charge on a new loan for the development of a Project.

Bank Loans are generally secured by a collateral assignment of our first lien mortgage loan for the applicable Project to the lender providing the Bank Loan and guaranteed by the Company. Financial institutions that have provided Bank Loans to us and predecessor companies include Bank of America, US Trust (now part of Bank of America), KeyBank, JP Morgan Chase, Texas Capital Bank, Wells Fargo, Goldman Sachs, Origin Bank, Bank SNB, Centennial Bank, Associated Bank, and First National Bank. The table below is a summary, as of September 30, 2017, of the outstanding principal balances owed by us under our current Bank Loans:

Outstanding Bank Loans

Financing Origination and Underwriting Process

HSF believes that through it’s Manager it has a strong underwriting team which has remained highly selective in the transactions it has recommended for financing and has not deviated from its core underwriting principals. As a result, HSF believes that it is well positioned to take advantage of the current market opportunities. HSF anticipates its Manager will use the following origination and underwriting process for its Financings, although the following process may vary significantly on a case by case basis:

1.       A loan officer is assigned to each prospective Financing opportunity for initial review and discussions with the prospective Borrower. HSF will seek to make Financings on Projects with strong real estate fundamentals and to prospective Borrowers with sound business plans and capital structures that are appropriate in the current credit-constrained environment.

2.       Prospective Borrowers are provided with a loan application letter setting forth the proposed terms of the Financing. The prospective Borrower (or its affiliate) will generally be required to (i) provide a due diligence deposit (typically not less than $25,000) and (ii) execute the application letter, which generally will provide for exclusivity to HSF to make the Financing for a designated period of time (typically 30 to 60 days). One or more associates are required to visit the site, meet with some or all of the principals representing the prospective Borrower, visit comparable properties as may be feasible, and complete preliminary due diligence.

3.       If a prospective Financing opportunity fits the Company’s financing program and underwriting criteria, the loan officer will engage the loan committee (the “Loan Committee”), which currently consists of Craig Hall, Richard Hyman and Donald Braun. A detailed memorandum will be concurrently submitted to the Loan Committee for consideration in connection with a request for preliminary approval. Upon submission of a prospective Financing for preliminary approval, the Loan Committee may approve, alter, or deny the terms of the proposed Financing. If the Financing is preliminarily approved by the Loan Committee, an additional deposit will generally be required from the Borrower (typically in the amount of $25,000). A prospective Financing may be submitted to the Loan Committee for approval one or more times. See “Management.”

4.       Once preliminary Loan Committee approval is received, we will then conduct its final due diligence review and loan documentation process which typically takes between 30 and 60 days. This includes an examination of the legal structure of the transaction, including Patriot Act due diligence as may be required, and credit, background and reference checks of the prospective Borrower and its key principals. HSF uses a number of third party experts to perform certain underwriting tasks, including appraisals, environmental reports, title review, insurance analysis and construction evaluation. HSF employs outside law firms in the closing and documentation of each Financing. Market work generally consists of visiting the location, shopping comparables, and/or communicating with appraisers, local brokers and/or other market participants.

5.       Once the final due diligence and loan documentation process has been completed, the HSF loan officer and other associates involved in the due diligence and closing process report material deviations from the terms and conditions preliminarily approved by the Loan Committee, if any, in obtaining final approval by the Loan Committee and prior to the final Financing documents being executed.

The table below outlines our loan origination process.

Anticipated Financing Terms

HSF currently anticipates that the interest rate on Financings structured as first mortgage loans will be between 8.75% to 10% over 30-day LIBOR. Financings may be subject to a floor interest rate cost. We typically obtain Bank Loans secured by such first mortgage loans. HSF currently anticipates that it will obtain Bank Loans at approximately 75% of the commitment amount of each first mortgage Financing, resulting in an expected IRR return to HSF on the net equity in each first mortgage Financing of in excess of 20%. HSF has typically obtained Bank Loans on a loan by loan basis. Each Bank Loan is generally secured by the collateral assignment of HSF’s first mortgage Financing for such Project to the lender providing the Bank Loan, and guaranteed by HSF, subsidiaries of HSF, and/or other affiliated entities. Financial institutions that have provided Bank Loans to HSF and predecessor companies include Bank of America, US Trust (now part of Bank of America), KeyBank, JP Morgan Chase, Texas Capital Bank, Wells Fargo, Goldman Sachs, Origin Bank, Bank SNB, Centennial Bank, Associated Bank, and First National Bank. There can be no assurance that HSF will be able to obtain any Bank Loans in the future. HSF anticipates that new Financings will have one- to three-year terms, and may provide for one- to two-year extension options.

Investment Limitations to Avoid Registration as an Investment Company

General

We conduct our operations so that neither we nor any of our subsidiaries will be required to register as an investment company under the Investment Company Act. Under the relevant provisions of Section 3(a)(1) of the Investment Company Act, we will not be deemed to be an "investment company" if:

We believe that we and our subsidiaries satisfy both tests above. With respect to the 40% test, the entities through which we make our loans are wholly-owned subsidiaries that are not themselves investment companies and are not relying on the exceptions from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) (relating to private investment companies).

Through our wholly-owned subsidiaries, we engage in the non-investment company businesses of these subsidiaries. Although the SEC staff has issued little guidance with respect to the primarily engaged test, we are not aware of any court decisions or SEC staff interpretations finding a holding company that satisfies the 40% test to nevertheless be an investment company under the primarily engaged test.

We believe our subsidiaries may rely on Section 3(c)(5)(C) of the Investment Company Act for an exception from the definition of an investment company. The SEC staff’s position on Section 3(c)(5)(C) generally requires that an issuer maintain at least 55% of its assets in "mortgages and other liens on and interests in real estate," or qualifying assets; at least 80% of its assets in qualifying assets plus real estate-related assets; and no more than 20% of the value of its assets in other than qualifying assets and real estate-related assets, which we refer to as miscellaneous assets. We discuss below how we treat the investments of our subsidiaries that own them under the Investment Company Act.

Real Property. We treat an investment in real property as a qualifying asset.

Mortgage Loans. We treat a first mortgage loan as a qualifying asset provided that the loan is fully secured, i.e., the value of the real estate securing the loan is greater than the value of the note evidencing the loan. If the loan is not fully secured, the entire value of the loan is classified as a real estate-related asset if 55% of the fair market value of the loan is secured by real estate. We treat mortgage loans that are junior to a mortgage owned by another lender, or second mortgages, as qualifying assets if the real property fully secures the second mortgage.

Other Real Estate-Related Loans. We treat the other real estate-related loans, i.e., bridge loans, wraparound mortgage loans, construction loans and loans on leasehold interests, as qualifying assets if such loans are fully secured by real estate. With respect to construction loans, we treat only the amount outstanding at any given time as a qualifying asset if the value of the property securing the loan at that time exceeds the outstanding loan amount plus any amounts owed on loans senior or equal in priority to our construction loan.

Absence of No-Action Relief

If certain of our subsidiaries fail to own a sufficient amount of qualifying assets or real estate-related assets, we could be characterized as an investment company. We have not sought a no-action letter from the SEC staff regarding how our investment strategy fits within the exceptions from registration under the Investment Company Act on which we and our subsidiaries intend to rely. To the extent that the SEC’s Division of Investment Management provides more specific or different guidance regarding the treatment of assets as qualifying assets or real estate-related assets, we may be required to adjust our investment strategy accordingly. Any additional guidance from the SEC’s Division of Investment Management could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen. 

MANAGEMENT

Our Manager

HSF operates under the direction of our Manager, which is responsible for directing the management of our business and affairs, managing our day-to-day affairs, and implementing our investment strategy. We have established the Loan Committee that will make decisions with respect to all acquisitions and dispositions. See “Loan Committee of the Manager” below. Senior executives of our Manager are highly experienced real state lenders with each having more than 25 years of commercial real estate and financing expertise. Some of the members of management are not required to devote all of their time to our business and are only required to devote such time to our affairs as their duties require.

We will follow investment guidelines adopted by our Manager and the investment and borrowing policies set forth in this Offering Circular unless they are modified by our Manager. Our Manager may establish further written policies on investments and borrowings and will monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled. Our Manager may change our investment objectives at any time without approval of our members.

Our Manager performs its duties and responsibilities pursuant to a management agreement. Our Manager maintains a contractual, as opposed to a fiduciary relationship, with us and our members. Furthermore, we have agreed to limit the liability of our Manager and to indemnify our Manager against certain liabilities.

Responsibilities of our Manager

The responsibilities of our Manager include:

Project Advisory, Origination and Acquisition Services 

Offering Services 

Management Services 

 Accounting and Other Administrative Services 

 Holder Services 

 Financing Services 

Executive Officers and Key Individuals of Management

Donald L. Braun*, Manager, Executive Vice President and Secretary - See “Loan Committee—Loan Committee of our Manager” for Mr. Braun’s biography.

Michael J. Jaynes, President - Mr. Jaynes has over 30 years of commercial real estate experience. He is directly responsible for loan originations and the asset management of outstanding loans. Mr. Jaynes rejoined HALL Group affiliates in 2000. Prior to rejoining HALL Group affiliates, Mr. Jaynes worked more than 7 years at GE Capital Real Estate as vice president and program manager. At GE Capital Real Estate, Mr. Jaynes was responsible for the performance of equity and debt portfolios valued at more than $2 billion dollars consisting of over 240 multifamily, office, retail, and hotel assets located throughout the country. Mr. Jaynes is a graduate of the Ohio State University, with a BS in business administration and a concentration in real estate.

Matt Mitchell, Senior Vice President - Mr. Mitchell has over 15 years of experience in commercial real estate and finance. He is responsible for sourcing, originating, and underwriting new real estate loans. Previously, Mr. Mitchell held various management and analytical positions in the commercial real estate industry, including 5 years with Ernst & Young's Transaction Real Estate Practice where he participated in and managed various valuation, loan underwriting, and transaction due diligence projects related to commercial real estate transactions totaling over $5 billion. Mr. Mitchell is a graduate of Texas A&M University with a BS in Finance.

David Cain, Vice President - Mr. Cain focuses primarily on loan originations with an emphasis on underwriting, market analysis, and drafting internal recommendations to the Loan Committee. He has 15 years of diverse experience with HALL Group affiliates. Mr. Cain holds a Bachelor of Arts degree from the University of Southern California and a Masters of Business Administration (MBA) degree from the University of California - Davis.

Brad Ferguson, Production Manager - Mr. Ferguson has over 10 years of combined experience in commercial real estate and portfolio management. As Production Manager for HSF, Mr. Ferguson's primary focus is new loan origination with an emphasis in underwriting, financial analysis and asset management. Prior to joining HSF, Mr. Ferguson held asset management roles with multiple companies over-seeing commercial real estate portfolios ranging from $100 million to $2 billion. Mr. Ferguson holds an MBA from Texas State University and a BBA in real estate and marketing from Baylor University.

Mike Canning, Senior Asset Manager - Mr. Canning has 15 years of real estate and finance industry experience. He focuses primarily on screening new deals, underwriting and drafting internal recommendations for HSF's investment committee, as well as various other projects within HALL Group. Prior to joining HSF, Mr. Canning held various analytical and project management roles at GE Real Estate. Mr. Canning holds a BA in Economics and Business from Virginia Military Institute.

Rebecca Reitz, Loan Compliance Manager - Ms. Reitz joined HALL Group affiliates in 1988 and in 2006 was appointed to the position of Loan Compliance Manager. In her nearly 30 years with HALL Group affiliates she has excelled in a number of positions. Ms. Reitz is responsible for monitoring loan agreements and insuring the ongoing compliance of borrowers in such areas as financial reporting, insurance renewal and escrows, tax payments and escrows etc. Ms. Reitz also acts as a closing coordinator in managing and insuring compliance with the closing checklist by borrowers for each loan closing. Ms. Reitz serves as a board member on the Frisco YMCA.

Dean Goodboe, Senior Asset Manager - Mr. Goodboe joined the Company in 2017. He has more than 7 years of loan origination experience. He focuses primarily on closing, financing analysis and asset management of the Company’s Loans. Previously, Mr. Goodboe held production positions where he originated approximately $3.0 billion in commercial real estate loans in roles at Goldman Sachs and Bank of the Ozarks. Mr. Goodboe holds a Bachelor of Arts degree and an MBA from Southern Methodist University.

Felipe Castillo*, Director of Asset and Construction Management - Mr. Castillo has over 15 years of experience in commercial real estate and development. Mr. Castillo focuses on asset management over-sight of Borrower Projects during Loan due diligence on prospective new Loans and during the construction period of Projects securing Financing. Prior to joining the Company, Mr. Castillo was Vice President of Development for multiple development companies overseeing the real estate, finance and construction of multiple hospitality, retail, high-rise, office and industrial development projects. Mr. Castillo is an architect and holds a MBA and a Master’s degree in Architecture from Texas Tech University.

Margaret Coughlin*, Controller - Ms. Coughlin brings more than 30 years of accounting and financial leadership experience to her role as the Controller for HALL Group. She has worked with both public and private organizations and has international experience in Aberdeen, Scotland and Istanbul, Turkey. In her current role, Ms. Coughlin oversees accounting functions for HALL Group. After graduating from Vanderbilt University with a bachelor’s degree in economics, Ms. Coughlin began her career with EDS and Sun Oil Company. She is also a Certified Public Accountant (CPA) and a member of the American Institute of CPA’s and the Texas Society of CPA’s.

Mark Blocher*, Vice President of Investor and Broker Relations - Mr. Blocher joined HALL Group in 1984. He has more than 30 years of experience in investor and broker relations. Mr. Blocher has been head of investor relations for HALL Group entities for the past 25 years and most recently has been heading the private placement investment department, raising funds for various HALL Group development projects. Mr. Blocher has a Bachelor’s of Business Administration from the University of Michigan.

Whitney Jacobson*, Vice President of Investments - Ms. Jacobson has more than 25 years of experience with investment, strategic and communications leadership within the political, business and wine industries and has been with Hall Group affiliates since 1997. She provides overall guidance for all HALL and WALT Wines investor relations, communications, brand and charitable investment functions. Before joining HALL & WALT Wines in 2006, Ms. Jacobson worked at the White House in several capacities. From 1995-1997, she oversaw the Office of Personnel as Deputy Director under the Bill Clinton Administration. Then in 1997, Ms. Jacobson was appointed Chief of Staff for United States Ambassador to Austria, Kathryn Hall. She holds a Bachelor’s of Arts from Georgetown University and an MBA from DePaul University.

Stephanie Byrd*, General Counsel for HALL Group - Ms. Byrd has 20 years of legal experience. She directs the legal affairs and oversees risk management for HALL Group affiliated companies. Ms. Byrd’s legal career began with a downtown Dallas law firm, where she represented clients in a wide range of practice areas both in litigation and commercial transactions. After several years, she moved to California where she joined an AmLaw 200 firm and expanded her legal background to include risk management and insurance coverage. Ms. Byrd holds a bachelors of business administration in finance from the University of Texas at Austin and a Juris doctorate from Baylor School of Law.

Kymberley Scalia*, Vice President of Marketing for the Hall Group - Mrs. Scalia has 15 years of marketing and PR experience. Prior to joining HALL Group, Scalia held the position of Director of Corporate Marketing for over three years at Trademark Property Co. Prior to that, she was Vice President, Corporate Marketing for Coyote Management for twelve years. Previously she has held the positions of Regional Specialty Leasing Manager for Zamias Services, Inc., and Marketing Director/Specialty Leasing Manager for the WestEnd Market Place in Downtown Dallas. Ms. Scalia has a BA in Marketing from Western Michigan University and an AA in Fashion Merchandising and holds the CRX, CMD designation from the ICSC.

The majority of the individuals noted above work exclusively on matters involving HSF; however, where an * is indicated, services are provided for other affiliated entities in HALL Group as well.

Loan Committee

General

The Loan Committee is a standing committee, established to assist our Manager in fulfilling its oversight responsibilities by (1) considering and approving each Financing made, (2) establishing funding guidelines and overseeing Financings, (3) establishing policies for any loan amendments or modifications, and (4) overseeing the activities of subsidiaries. The Loan Committee will consist of at least three members, each of whom will be appointed by our Manager, who will serve until such time as such Loan Committee member resigns or is replaced by our Manager, in its sole and absolute discretion. The Loan Committee currently consists of Craig Hall, Donald Braun and Richard Hyman. The Loan Committee generally meets weekly and more frequently as business conditions require.

Loan Committee of our Manager

Craig Hall - Mr. Hall is Chairman and Founder of the HALL Group. Mr. Hall has successfully grown the HALL Group from an entrepreneurial start-up to a real estate and finance industry leader. He formed HALL Group in 1968 at age 18 with $4,000. Today, his diversified business interests include real estate ownership, real estate development and management; commercial real estate lending; vineyards and wineries; venture capital and private equity, and oil and gas.

Previously, Mr. Hall was a part owner of the Dallas Cowboys; formed one of the first stock savings and loans in Michigan; founded one of the first for-profit HMOs in the country; and participated, along with Time, Inc., in growing the nation's largest chain of health and sports clubs. He has received numerous prestigious awards and, most recently was named a member of the Horatio Alger Association for Distinguished Americans. Mr. Hall has authored six books, four of which are on real estate and real estate investing including Timing the Real Estate Market and The Responsible Entrepreneur. His most recent book A Perfect Score, co-authored with his wife Ambassador Kathryn Hall, was released in September 2016 and reached the New York Times non-fiction bestseller list.

Donald Braun - Mr. Braun is President of various HALL Group entities and is Executive Vice President/Secretary of the Company. Mr. Braun oversees the management of HALL Group's core business activities. Mr. Braun has been with HALL Group companies since 1980 and has extensive experience obtained over more than 35 years in the real estate finance markets working with and structuring debt and equity financing across a broad spectrum of international and domestic capital market sources. Mr.  Braun has served as a board member of numerous private companies across a broad range of industries and has served on the boards of various nonprofit organizations which currently include the Fairview Economic Development Corporation, and the Collin County Business Alliance. Mr. Braun holds a bachelor's degree in economics from Albion College and has a certified public accountant designation (CPA).

Richard Hyman - Mr. Hyman has been active as a principal in various commercial transactions and debt ventures for over 25 years. Triquest Financial Services, founded by Mr. Hyman, is a real estate investment and advisory firm. It was one of the first commercial loan conduits in the CMBS industry, and it originated or participated in transactions involving over a $1 billion. Mr. Hyman is a 1975 Phi Beta Kappa graduate of the University of Wisconsin at Madison. Mr. Hyman has worked closely with HALL Group for many years and has been a member of the Loan Committee for all investments which were made by HSF and its predecessors in interest dating back to 2001.

Limited Liability and Indemnification of our Manager and Others

HSF’s Company Agreement provides that no member or manager will be liable for the debts, obligations or liabilities of HSF. Additionally, we have agreed under the Company Agreement to indemnify “Covered Persons” against judgments, penalties, fines, settlements and reasonable expenses, including attorney’s fees, subject to certain limitations. “Covered Person” includes the manager, officers, in-house counsel, and advisors of HSF.

MANAGEMENT COMPENSATION

The investment activities of HSF are managed by an affiliate, HSF Holdings Management, LLC (the “Manager”), pursuant to the terms of a management agreement (“the Management Agreement”) included as Exhibit 6.1 to the offering statement of which this Offering Circular is a part.  The Management Agreement provides for the Manager to receive an annual management fee (the “Management Fee”), payable monthly, in an amount that approximates the general and administrative expenses attributable to the Company, which may include but not be limited to payroll costs attributable to personnel engaged in the work and affairs of HSF either exclusively or on an allocated basis, rent, supplies, insurance, postage, for each given year on a properly and fairly allocated basis plus a reasonable profit thereon (but which shall exclude direct expenses which are 100% attributable to the Company and payable by the Company to unaffiliated third parties for items that may include but are not limited to legal expenses, advertising, accounting expenses (the “HSF Direct Costs”)).  The Manager and the Company will from time to time, but no less frequently than semi-annually, evaluate the general and administrative costs attributable to the Company (excluding HSF Direct Costs) and adjust the Management Fee accordingly. While it is anticipated that the amount of the Management Fee may vary from year to year depending on the level of activity in HSF and the management support provided, in no event, however, shall the Management Fee payable by the Company to the Manager for any given year exceed the greater of (1) 1.5% of the commitment amount on new Financings originated during such calendar year, or (2) 1% of the principal payments received by the Company on existing Financings during such calendar year. The Management Agreement also obligates the Company pay directly, or reimburse the Manager, for all of the costs and expenses of the Company’s operations, including, without limitation, (1) all organization and offering expenses, (2) all costs of borrowed money, taxes and assessments on any property owned by the Company, as well as other taxes applicable to the Company, (3) legal, accounting, audit, brokerage and other fees, (4) all expenses incurred with the maintenance of Company books and records, the preparation and dissemination of reports, tax returns or other information to the holders of the Debentures and the making of payments or distributions to such holders, (5) expenses incurred in preparing and filing reports or other information with appropriate regulatory agencies, (6) insurance expenses and (7) all other costs and expenses incurred in connection with the Company’s business.

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

The following discussion contains forward-looking statements that involve risk and uncertainties. Our actual results could differ materially from those expressed or implied in forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this Offering Circular.

The following discussion and analysis is based on, and should be read in conjunction with, our unaudited financial statements and notes thereto as of September 30, 2017 and audited historical financial statements and related notes thereto as of and for the years ended December 31, 2016 and 2015.

Overview

HSF is a direct private real estate lender engaged in providing acquisition, bridge, and construction financing on a value-add basis for hotel, office, multifamily, condominium and mixed use and various other real estate projects located throughout the United States. As of September 30, 2017, we had approximately $328 million in outstanding loan commitments, with approximately $102 million in outstanding borrowings.

We focus on debt financing opportunities that are underserved by the institutional markets. Our current emphasis is on providing non-recourse, first lien construction financing. Our loan programs are designed to provide an alternative for real estate investors and developers who cannot meet their financing needs through traditional lending programs. We offer flexible underwriting standards, creative loan structures and fast execution for ground-up construction, adaptive reuse, major asset repositioning and renovation projects.

For a discussion of certain factors that may influence future results of operations, see “Trend Information” below.

Operating Results

Results of Continuing Operations - Nine-month period ended September 30, 2017 Compared to Nine-month period ended September 30, 2016

Our results of continuing operations for the nine-month periods ended September 30, 2017 and 2016 were as follows:

Interest Income – Interest income was $8,276,097 for the nine-month period ended September 30, 2017, an increase of $356,072 from the interest income for the nine-month period ended September 30, 2016. This increase in interest income was primarily attributable to an increase in the average outstanding balance of loan receivables.

Interest Expense – Interest expense was $2,229,090 for the nine-month period ended September 30, 2017, an increase of $814,179 from interest expense for the nine-month period ended September 30, 2016.  This increase was primarily attributable to an increase in the average outstanding balance of loans payable.

Management Fee –The Management Fee for the nine-month period ended September 30, 2017 was $2,250,000, compared to $0 for the nine-month period ended September 30, 2016. Effective January 1, 2017, the Company has employed and appointed HSF Holdings Management LLC (the “Manager”), pursuant to the terms of a management agreement which provides for the Manager to receive a management fee in an amount that approximates certain general and administrative expenses attributable to the Company, which includes among other items, payroll costs attributable to personnel engaged in the work and affairs of the Company, either exclusively or on an allocated basis, rent, supplies, insurance, postage, for each given year plus a reasonable profit thereon; the Management Fee does not cover direct general and administrative expenses payable to unaffiliated 3rd parties which include among other items certain legal expenses, advertising, and accounting expenses. 

General and Administrative – General and administrative expenses were $550,580 for the nine-month period ended September 30, 2017, a decrease of $1,080,612 from general and administrative expenses for the nine-month period ended September 30, 2016.  This decrease is partially offset by the Management Fee, associated with the Company entering into the Management Agreement effective January 1, 2017 as provided above. On a combined basis, the Management Fee and General and Administrative expenses increased by $1,169,388 for the nine-month period ended September 30, 2017 as compared to the nine-month period ended September 30, 2016. This increase was primarily attributable to the Company entering into the management agreement, an increase in staffing which are 100% dedicated to the Company’s activities as reflected as part of the Management Fee, and an increase in direct marketing costs.

Net Income Attributable to Noncontrolling Interest – The net income attributable to the noncontrolling interests was $206,745 for the nine-month period ended September 30, 2017, a decrease of $193,928 from net income attributable to the noncontrolling interests for the nine-month period ended September 30, 2016.   This decrease was primarily attributable to a subsidiary which was sold in September 2017.

Results of Continuing Operations - Years ended December 31, 2016 Compared to Year Ended December 31, 2015

Our results of continuing operations for the years ended December 31, 2016 and 2015 were as follows:

Interest income – Interest income was $10,369,132 for the year ended December 31, 2016, an increase of $5,393,840 from interest income for the year ended December 31, 2015. This increase in interest income was primarily attributable to an increase in the average outstanding balance of loan receivables.

Interest Expense – Interest expense was $1,887,086 for the year ended December 31, 2016, an increase of $897,003 from interest expense for the year ended December 31, 2015.  This increase was primarily attributable to an increase in the average outstanding balance of loans payable.

General and Administrative Expenses – General and administrative expenses were $2,297,825 for the year ended December 31, 2016, an increase of $979,861 from general and administrative expenses for the year ended December 31, 2015.  This increase was primarily attributable to an increase in payroll and benefits resulting from an increase in staffing.

Impairment of Real Estate and Discontinued Operations – In 2015, the Company recognized impairment on real estate of $286,806, which was classified as discontinued operations in 2015. In 2016, there was no impairment of real estate or discontinued operations.

Net Income Attributable to Noncontrolling Interest – The net income attributable to the noncontrolling interests was $459,141 for the year ended December 31, 2016, an increase of $311,659 from net income attributable to the noncontrolling interests for the year ending December 31, 2015.   This increase was primarily attributable to an increase in the average outstanding balance of the capital contributed during the year ended September 30, 2016 by interests which are noncontrolling.

Liquidity and Capital Resources

As of September 30, 2017, we had $71,065,263 of Loans Payable, of which $50,626,620 is due within the next year. The Loans Payable are secured by financings, having an outstanding balance of $97,315,885 as of September 30, 2017, of which $66,075,272 is due within the next year.

We believe that the cash flow from financings will be sufficient to meet our normal operating expenses and other obligations during the next year.

Plan of Operations

Over the next 12 months, we intend to continue to execute on our business plan of making loans for Projects throughout the United States.  See “Description of Business.”  We have sufficient existing capital resources to fund our current lending obligations described under “Description of Business – Loan Pipeline” under our current business model with Bank Loans being secured on each Financing. The number of future Projects that we will be able to finance will depend, in part, our ability to raise funds through this Offering and the availability of additional debt financing such as Bank Loans.  We expect the proceeds of this Offering, together with other sources of financing, including new Bank Loans, will be sufficient for us to implement our immediate business plan and that no additional securities, other than Debentures, will need to be raised over the next six months in order to implement our business plan.

Trend Information

In recent periods, we have experienced an increase in the number of Financing opportunities and an increase in the size of the Financings that are being presented to us from prospective borrowers and their representatives.  This has in turn resulted in an increase in the amount of the new Financings that we have closed and originated.  Not only have we experienced an increase in demand for construction financing related to hotels, which is predominantly what we have financed recently, but we are seeing an increase in demand for construction financing for other product types such as multifamily, condominiums, and student housing projects as well.   If this trend continues, we may have a somewhat more diverse portfolio of Financings as between various real estate types moving forward than in the past few years.

HSF originated just over $66 million in new Financings in 2016, as compared to $178 million in new Financings closed and completed during the first nine months of 2017.  In addition, as of September 30, 2017, we had $115 million in new Financings which had been approved by the Loan Committee and were in final due diligence and the closing and documentations process. 

In addition, our average loan size continues to increase.  For the years 2014 to 2016 the average size of our Financings was under $20 million. For new Financings closed during the first 9 months of 2017, the average loan size has been in excess of $22 million.   A significant portion of new prospective Financing opportunities being presented to us are in the $30 million to $50 million range.   Based on this trend we expect the average size of our Financings to grow to over $25 million over time.

The increased volume in the number of prospective new Financings we are being presented can be attributed mainly to the continued pull-back by traditional institutional lenders in providing construction financing.  The pull back by financial institutions in providing construction financings is in large part a result of the increased regulatory burden on banks and other financial institutions related to such loans as a result of Basel III and the Dodd-Frank Act.   In addition, some of the increased volume in the number of prospective new Financings we are being presented can be attributed to a more aggressive marketing campaign we have undertaken directed at mortgage brokers, mortgage bankers, and real estate owners and developers.

PRINCIPAL MEMBERS

The following table sets forth the beneficial ownership of the Company’s membership interests (the “Units”) as of the date of this Offering Circular for each person or group that holds more than 10% of our Units, for each executive officer and manager of the Company and for the executive officers and manager of the Company as a group.

Unless otherwise indicated below, each person or entity has an address in care of our principal executive offices at 2323 Ross Avenue, Suite 200, Dallas, Texas 75201.

FEDERAL INCOME TAX CONSEQUENCES

Circular 230 Notice

The tax discussion contained in this Offering Circular is not given in the form of a covered opinion within the meaning of Circular 230 issued by the United States Secretary of the Treasury. Thus, we are required to inform you that you cannot rely upon any discussion contained in this document for the purpose of avoiding United States federal tax penalties. The tax summary contained in this Offering Circular was written to support the promotion or marketing of the transactions or matters described in this document. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

The following is a summary of certain aspects of the federal income tax consequences of the purchase, ownership, and disposition of the Debentures. HSF has not sought a ruling from the IRS or any similar state, local or foreign authority with respect to any of the tax issues affecting HSF or the Holders, nor has it obtained an opinion of counsel with respect to any federal, state, local, or foreign tax issues.

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated under the Code (the “Treasury Regulations”), judicial decisions, administrative rulings, undertakings, and state and local tax laws, in force on the date of this Offering Circular, all of which are subject to change (possibly with retroactive effect). Changes in existing laws or regulations and their interpretation may occur after the date of this Offering Circular and could alter the income tax consequences of an investment in Debentures. This summary does not discuss all of the tax consequences that may be relevant to a particular investor or to certain investors subject to special treatment under the U.S. federal income tax laws, such as insurance companies, financial institutions, or securities dealers. The discussion focuses primarily upon investors who will hold the Debentures as “capital assets” (generally, assets held for investment) within the meaning of the Code. Further, this discussion assumes that non-U.S. persons will not invest in Debentures and therefore does not address the tax considerations relevant to an investment in Debentures by a non-U.S. person.

Unless otherwise expressly provided herein, this discussion does not address possible state, local, or foreign tax consequences of the purchase, ownership, or disposition of Debentures, some or all of which may be material to particular investors. This discussion also does not address the potential application of the U.S. federal alternative minimum tax to Holders. Because there are no regulations, judicial decisions, or published rulings involving the characterization, for federal income tax purposes, of securities with substantially the same characteristics as the Debentures, there is uncertainty concerning certain tax aspects of the Debentures and there can be no assurance that the IRS will not challenge the positions taken by HSF.

EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR IN ORDER TO UNDERSTAND FULLY THE FEDERAL, STATE, LOCAL, AND ANY FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN DEBENTURES IN ITS PARTICULAR SITUATION.

HSF believes that if the terms of the Debenture Purchase Agreement are complied with, the Debentures should be treated for federal income tax purposes as debt obligations and not as equity interests of HSF. If it were determined that the Debentures should be treated for federal income tax purposes as an equity investment in HSF instead of as an indebtedness, the changes in the tax consequences to Holders might be significant and adverse. HSF intends to treat the Debentures as indebtedness for all purposes and the following discussion is based on the assumption that the Debentures will be treated in their entirety as indebtedness and not as an equity investment in HSF.

Interest Received on the Debentures

Interest paid or accrued on the Debentures should be treated as ordinary income to the Holders. Interest paid to Holders would generally be taxable to them when received, but interest paid to Holders who report their income on the accrual method would be taxable to them when accrued, if earlier, regardless of when such interest is actually paid. HSF will report annually to the IRS and to the Holders of record interest paid or accrued on the Debentures.

Market Discount

A subsequent purchaser of a Debenture at a discount from the aggregate principal amount of the Debenture would generally be required to (i) treat a portion of any gain realized on a sale, exchange, redemption or certain other dispositions (e.g., a gift) of the Debenture as ordinary income to the extent of the accrued market discount and defer, until disposition of the Debenture, all or a portion of the interest deductions attributable to any indebtedness incurred or continued to purchase or carry the Debenture issued with market discount in the event such interest exceeds the interest on the Debenture includable in the Holder’s income or (ii) elect to include such market discount in income as it accrues on all market discount instruments held by such Holder. It should be noted that market discount will be deemed to be zero if the amount allocable to each Debenture is less than one-quarter of one percent of the stated redemption price at maturity of such Debenture times the number of complete years to its maturity remaining after the date of purchase.

Sale or Exchange of the Debentures

Upon a sale, exchange, or redemption of a Debenture, the Holder should recognize gain or loss equal to the difference between the amount realized on such sale, exchange, or redemption and his or her adjusted basis in the Debenture. Such adjusted basis will generally equal the cost of the Debenture to such Holder (increased by market discount if the election described above is made) included in his or her gross income with respect to such Debenture and reduced by any basis in the Debenture previously allocated to payments on the Debenture received by such Holder. Similarly, a Holder who receives a principal payment with respect to a Debenture will recognize gain or loss equal to the difference between the amount of the payment and his or her adjusted basis in the Debenture or portions thereof that are satisfied by such payment. Except as discussed above with respect to market discount, any such gain or loss will be capital gain or loss (provided the Debenture is held as a capital asset) and will be long-term or short-term depending on whether the Debenture has been held for more than one year.

Backup Withholding

A Holder may, under certain circumstances, be subject to “backup withholding” with respect to “reportable payments.” This withholding generally applies if a Holder (i) fails to furnish HSF with its taxpayer identification number (“TIN”), (ii) furnishes HSF an incorrect TIN, (iii) fails to report properly interest, dividends or other “reportable payments” as defined in the Code or (iv) under certain circumstances, fails to provide HSF with a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that the holder is not subject to backup withholding. Backup withholding will not apply, however, with respect to certain payments made to Holders, including payments to certain exempt recipients (such as exempt organizations) and to certain foreign investors. Holders should consult their tax advisers as to their qualification for exemption from backup withholding and the procedure for obtaining the exemption .

State Income Tax Consequences

In addition to the federal income tax consequences described above, you should also consider the state income tax consequences of the acquisition, ownership, and disposition of the Debentures. State income tax law may differ substantially from the corresponding federal law, and this discussion does not purport to describe any aspect of the income tax laws of any state. Therefore, you should consult your own tax advisors with respect to the various state tax consequences of an investment in the Debentures.

Future Tax Legislation; Necessity of Obtaining Professional Advice

Future amendments to the Code, other legislation, new or amended Treasury Regulations, administrative rulings or decisions by the Service, or judicial decisions may adversely affect the federal income tax aspects of an investment in Debentures, with or without advance notice, retroactively or prospectively. The foregoing analysis is not intended as a substitute for careful tax planning. The tax matters relating to an investment in Debentures are complex and are subject to varying interpretations. There can be no assurance that the Service will agree with each position taken by HSF with respect to the tax treatment of Debentures. Moreover, the effect of existing income tax laws and of proposed changes in income tax laws on Holders will vary with the particular circumstances of each Holder and, in reviewing this Offering Circular and any exhibits hereto, these matters should be considered.

Accordingly, each prospective investor must consult with and rely solely on its own professional tax advisors with respect to the tax results of its investment in Debentures. In no event will HSF, or its affiliates, counsel, or other professional advisors be liable to any investor for any federal, state, local or foreign tax consequences of an investment in Debentures, whether or not such consequences are as described above.

The foregoing is a summary of some of the important tax rules and considerations affecting potential investors in Debentures. This summary does not purport to be a complete analysis of all relevant tax rules and considerations, which will vary with the particular circumstances of each investor, nor does it purport to be a complete listing of all potential tax risks inherent in purchasing or holding Debentures. The foregoing does not address tax considerations affecting investors that are not U.S. persons. Each prospective investor in Debentures is urged to consult its own tax advisor in order to understand fully the federal, state, local, and any foreign tax consequences of such an investment in its particular situation.

ERISA CONSIDERATIONS

The acquisition of the Debentures by pension, profit-sharing or other employee benefit plans that are subject to Title I of ERISA, individual retirement accounts, Keogh Plans and other plans covered by Section 4975 of the Code and entities deemed to hold the plan assets of the foregoing (each, a “Plan”) may be subject to Section 406 of ERISA and Section 4975 of the Code which prohibit a Plan from engaging in certain transactions with persons that are “parties in interest” under ERISA or “disqualified persons” under the Code with respect to such Plan. A violation of these “prohibited transaction” rules may result in an excise tax or other penalties and liabilities under ERISA and the Code for such persons or the fiduciaries of the Plan. ERISA also requires that fiduciaries of a Plan subject to ERISA make investments that are prudent, diversified (except if prudent not to do so) and in accordance with governing plan documents.

Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) and non-U.S. plans (each an “Other Plan Investor”) are not subject to the ERISA or Section 4975 of the Code prohibited transaction or ERISA fiduciary responsibility requirements; however, such plans may be subject to substantially similar federal, state or local law or non-U.S. restrictions.

Certain transactions involving the Company might be deemed to constitute prohibited transactions under ERISA and the Code with respect to a Plan that purchased the Debentures if assets of the Company were deemed to be assets of a Plan. Under a regulation issued by the United States Department of Labor (the “Regulation”) and Section 3(42) of ERISA, the assets of the Company would be treated as plan assets of a Plan for purposes of ERISA and the Code only if the Plan acquired an “equity interest” in the Company and none of the exceptions to plan asset treatment contained in the Regulation, as effectively amended by Section (3)(42) of ERISA, were applicable. An equity interest is defined under the Regulation as an interest other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features.

Purchases of Debentures

Although there is little guidance on the subject, we believe that the Debentures should be treated as indebtedness without substantial equity features for purposes of the Regulation. This determination is based in part upon the traditional debt features of the Debentures, including the reasonable expectation of purchasers of such Debentures that they will be repaid when due, as well as the absence of conversion rights, warrants and other typical equity features. Based upon the foregoing and other considerations, and subject to the considerations described below, the Debentures may be acquired by a Plan.

However, without regard to whether the Debentures are treated as an equity interest for purposes of the Regulation, the acquisition or holding of Debentures by or on behalf of a Plan could be considered to give rise to a prohibited transaction if we or any of our affiliates are or become a party in interest or a disqualified person with respect to such Plan. In such case, certain exemptions from the prohibited transaction rules could be applicable to the purchase and holding of the Debentures by a Plan depending on the type and circumstances of the Plan fiduciary making the decision to acquire such Debentures. Included among these exemptions are: Prohibited Transaction Class Exemption (“PTCE”) 90-1, regarding investments by insurance company pooled separate accounts; PTCE 95-60, regarding investments by insurance company general accounts; PTCE 91-38, regarding investments by bank collective investment funds; PTCE 96-23, regarding transactions affected by “in-house asset managers”; and PTCE 84-14, regarding transactions effected by “qualified professional asset managers.” In addition to the class exemptions listed above, there is also a statutory exemption that may be available under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code for prohibited transactions between a Plan and a person or entity that is a party in interest to such Plan solely by reason of providing services to a Plan (other than a party in interest that is a fiduciary, or its affiliate, that has or exercises discretionary authority or control or renders investment advice with respect to the assets of the plan involved in such transaction), provided that there is adequate consideration for the transaction. Even if the conditions described in one or more of these exemptions are met, the scope of relief provided by these exemptions might or might not cover all acts which might be construed as prohibited transactions. There can be no assurance that any of these, or any other exemption, will be available with respect to any particular transaction involving the Debentures and prospective purchasers that are Plans should consult with their advisors regarding the applicability of any such exemption.

By acquiring a Debenture (or any interest therein), each purchaser will be deemed to represent, warrant and covenant that either (1) it is not a Plan and it is not acquiring such Debentures with the assets of a Plan nor is it an Other Plan Investor subject to any federal, state, local, non-U.S. or other law that is substantially similar to Title I of ERISA or Section 4975 of the Code and it is not acquiring such Debenture with the assets of an Other Plan Investor, or (2) the acquisition, holding and disposition of such Debentures will not give rise to a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or a nonexempt violation under any federal, state, local, non-U.S. or other substantially similar law.

In addition, if a Debenture (or any interest therein) is acquired by a Plan or is acquired with “plan assets” of any Plan within the meaning of the Regulation and Section 3(42) of ERISA, then the Plan, and the fiduciary of the Plan acquiring the Debenture on behalf of the Plan or with such plan assets (the (“Independent Plan Fiduciary”) will be deemed to represent, warrant and covenant that the decision to acquire the Debenture (or interest therein) has been made by the Independent Plan Fiduciary and the Independent Plan Fiduciary is an “independent fiduciary with financial expertise” as described in 29 C.F.R. Section 2510.3-21(c)(1). Specifically, this requires the Plan and Independent Plan Fiduciary to represent and warrant that:

1.        The Company and their respective affiliates (collectively, the (“Transaction Parties”) have not provided nor will provide advice with respect to the acquisition of the Debenture (or interest therein) by the Plan, other than to the Independent Plan Fiduciary which is independent of the Transaction Parties, and the Independent Plan Fiduciary either:

2.       The Independent Plan Fiduciary is capable of evaluating investment risks independently, both in general and with respect to particular transactions and investment strategies, including the acquisition by the Plan of the Debenture (or interest therein);

3.       The Independent Plan Fiduciary is a “fiduciary” with respect to the Plan within the meaning of Section 3(21) of ERISA, Section 4975 of the Internal Revenue Code, or both, and is responsible for exercising independent judgment in evaluating the Plan’s acquisition of the (or interest therein);

4.       None of the Transaction Parties has exercised any authority to cause the Plan to invest in the Debentures (or interest therein) or to negotiate the terms of the Plan’s investment in the Debentures (or interest therein); and

5.       The Independent Plan Fiduciary has been informed by the Transaction Parties:

The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that any fiduciary of a Plan or Other Plan Investor or other person who proposes to use assets of any Plan or Other Plan Investor to acquire the Debentures should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA, Section 4975 of the Code, and any applicable similar laws to such an investment, and to confirm that such investment will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA, the Code, or any applicable similar laws.

The sale of Debentures to a Plan or another Plan Investor is in no respect a representation that this investment meets all relevant legal requirements with respect to investments by Plans or Other Plan Investors generally or by a particular Plan or Other Plan Investor, or that this investment is appropriate for Plans or Other Plan Investors generally or any particular Plan or Other Plan Investor.

Prospective Plan investors and Other Plan Investors should consult with their legal advisors concerning the impact of ERISA and Section 4975 of the Code or any other substantially similar applicable law, the effect of the assets of the issuer being deemed “plan assets” and the applicability of any applicable exemption prior to making an investment in the Debentures. Each Plan fiduciary should determine whether under the fiduciary standards of investment prudence and diversification, an investment in the Debentures is appropriate for the Plan, also taking into account the overall investment policy of the Plan and the composition of the Plan’s investment portfolio.

DESCRIPTION OF OUR DEBENTURES

General

We are offering eight percent (8%) interest-bearing Debenture with interest payable quarterly on or about January 15, April 15, July 15 and October 15 of each year until maturity. It is anticipated that the proceeds of this Offering will be used to, among other things: (1) provide acquisition, bridge, and construction financing on a value-add basis to Borrowers for hotel, office, multifamily, condominium and mixed use and various other real estate projects located throughout the United States, (2) make advances of funds to protect its investments in the existing Financings if a borrower defaults on mortgage payments to cover various costs and expenses resulting from such default, including legal fees, in enforcing and pursuing our rights and remedies under the loan documents and to provide protective advances to complete the construction of the property in the unlikely event that HSF forecloses on the Project, (3) pay down amounts due under Bank Loans and (4) pay costs associated with the management and making of the Financings and this Offering. The following summary of certain terms of the Debentures does not purport to be complete and is subject to and qualified in its entirety by reference to the Debenture Purchase Agreement, pursuant to which the Debentures will be issued, and the form of Debenture, copies of which are filed as exhibits to the offering statement of which this Offering Circular is a part.

Interest

 The Debentures will bear interest at a rate of eight percent (8%) per annum, paid quarterly. All computations of the interest rate under the Debentures will be made on the basis of a 360-day year of twelve 30-day months and calculated based on the actual number of days elapsed. In the event that any interest rate provided under the Debentures are determined to be unlawful, such interest rate will be computed at the highest rate permitted by applicable law. Any payment by the investor of any interest amount in excess of that permitted by law will be considered a mistake, with the excess to be applied to the principal amount without prepayment premium or penalty.

Maturity

 Each Debenture will mature on December 31, 2022 (the “Maturity Date”), upon which date the Holders will be repaid principal and accrued interest in cash funds. 

We reserve the right to incur additional indebtedness related to the Projects, which if incurred, may rank senior to the Debentures. The Debentures’ principal and interest will be payable from cash flow generated by the repayment and/or liquidation of the Outstanding Loan portfolio, including the Financings, after operating expenses and debt service on the Bank Loans, or from the proceeds of new corporate indebtedness.

Optional Redemption

We may redeem the Debentures, in whole or in part, at any time or from time to time, prior to the Maturity Date after giving at least 30 days’ written notice to the Holders. The redemption price will equal 100% of the principal amount to be redeemed, plus accrued and unpaid interest thereon, if any. If less than all the Debentures are to be redeemed, the Debentures will be redeemed on a pro rata basis with respect to such Debentures identified by HSF, in its sole discretion, to be redeemed.

Redemption at the Option of Holders

Each month, beginning January 1, 2019 and continuing through the Maturity Date, the Holders will have the right to cause us to redeem all, but not less than all, of the Holders’ Debentures.  To effect a redemption, a Holder (the “Redeeming Holder”) must submit a written request to HSF for the redemption of its Debentures not later than the 15^th day of the month in which the Redeeming Holder desires to have its Debentures redeemed.  Within five business days following the end of each month, we will notify each Redeeming Holder as to whether such Holder’s request for redemption has been accepted.  The Company will redeem up to 5% of the aggregate principal amount of the Debentures each year (the “Maximum Amount”), but may, in its sole and absolute discretion, redeem Debentures in excess of such amount.  If, at the end of any month, the aggregate amount of Debentures for which redemptions have been requested exceeds the Maximum Amount for the applicable calendar year, the Company will accept redemptions in the order the redemption requests were received (pursuant to the notice requirements of the Debenture Purchase Agreement) up to the Maximum Amount; provided, however, that redemption requests resulting from the death of a Holder will be given priority regardless of the date received.  Interest will cease to accrue on the Debentures on the last day of the month following the month in which an accepted redemption request was received (the “Redemption Payment Date”).  The redemption price for each redeemed Debenture will be 96% of the principal amount of such Debenture, plus accrued and unpaid interest up to and including the Redemption Payment Date.  The redemption price will be paid to the Redeeming Holder on or about the Redemption Payment Date.   Any Debentures not accepted for redemption will continue to be outstanding and accrue interest pursuant to their terms.

HSF may at its sole and absolute discretion notify all other Holders that redemption requests have been received to determine whether any such other Holders are interested in acquiring the Debenture requested to be redeemed. We will provide the Redeeming Holder with the contact information for any Holders that notify HSF of their desire to purchase the Debentures to be redeemed, on a first come, first served basis. Any agreement to purchase must be reached between the Holders, and HSF will not otherwise assist in effecting the transaction. Changes in ownership of any Debenture must be promptly reported to us.

Covenants

The Debenture Purchase Agreement contains certain covenants relating to the operation of HSF, including the obligation to pay the Debentures, requiring us and our Manager to conduct our business in compliance with all applicable laws, requiring us to maintain our existence as a limited liability company, limiting our ability to merge or consolidate with another entity and certain restrictions on the ability of Hall Structured Finance II, LLC to make distributions to its member. 

Events of Default

You will have rights if an Event of Default occurs with respect to the Debentures and the Event of Default is not cured, as described in the form of Debenture:  

The term “Event of Default” with respect to the Debentures means any of the following: 

Remedies if an Event of Default Occurs

If an Event of Default has occurred and has not been cured, holders of at least 25% in principal amount of the Debentures may declare the entire principal amount of all the Debentures to be due and immediately payable. This is called a declaration of acceleration of maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the Debentures.

You are entitled at any time to bring a lawsuit for the payment of money due on your Debentures on or after the due date; provided, however, that the holders of a majority of the principal amount of the Debentures may negotiate and enter into a settlement, payment schedule or other arrangement (including, without limitation, the reduction or increase in interest and principal due to the holders, the modification of the manner, place or terms of payment and the release or discharge of any claims, fees or amounts due to the holders) on behalf of all holders during the course of any suit, proceeding or otherwise.

 Holders of a majority in principal amount of the Debentures may waive any past defaults other than a default: 

The holders of at least a majority in principal amount of the Debentures may agree in writing to postpone the payment of interest on the Debentures for up to three years from the original due date without any penalty or interest thereon.

Each year, we will furnish to the Holders a written statement of certain of our officers certifying that to their knowledge we are in compliance with the terms of the Debentures or else specifying any default.

Merger, Consolidation or Sale of Assets

Under the terms of the Debentures, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity.

Modification or Waiver

There are two types of changes we can make to the Debentures:

Changes Requiring Your Approval

First, there are changes that we cannot make to the Debentures without approval from each affected Holder. The following is a list of those types of changes:

 Changes Not Requiring Approval

The second type of change does not require any vote by the holders of the Debentures. This type is limited to clarifications, or to any provision of this “Description of Debentures,” and certain other changes that would not adversely affect holders of the Debentures in any material respect.

HOW TO SUBSCRIBE

Subscription Procedures

Investors seeking to purchase Debentures who satisfy the “qualified purchaser” standards should proceed as follows: 

By executing the Subscription Agreement and paying the total purchase price for our Debentures subscribed for, each investor agrees to accept the terms of the Subscription Agreement and attests that the investor meets the minimum standards of a “qualified purchaser”, and that such subscription for Debentures does not exceed 10% of the greater of such investor’s annual income or net worth (for natural persons), or 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). Subscriptions will be binding upon investors but will be effective only upon our acceptance and we reserve the right to reject any subscription in whole or in part.

Minimum Purchase Requirements

You must initially purchase at least four $20,000. If you have satisfied the applicable minimum purchase requirement, any additional purchase must be in amounts of at least $5,000. However, we may revise the minimum purchase requirements in the future.

LEGAL MATTERS

Certain legal matters, including the validity of Debentures offered hereby, have been passed upon for us by Winston & Strawn LLP.

INDEPENDENT AUDITORS

The financial statements of Hall Structured Finance II, LLC for the years ended December 31, 2016 and 2015 have been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report included in this Offering Circular, and have been included in this Offering Circular in reliance on such report, given on authority of said firm in auditing and accounting.

The financial statements of Hall Structured Finance II, LLC for the nine-month periods ended September 30, 2017 and 2016 have been reviewed by KPMG LLP, an independent registered public accounting firm, and have been included in this Offering Circular. Its report is available upon request.

ADDITIONAL INFORMATION

 We have filed with the SEC an offering statement under the Securities Act on Form 1-A regarding this offering. This Offering Circular, which is part of the offering statement, does not contain all the information set forth in the offering statement and the exhibits related thereto filed with the SEC, reference to which is hereby made. Upon the qualification of the offering statement, we will be subject to the informational reporting requirements of the Exchange Act that are applicable to Tier 2 companies whose securities are registered pursuant to Regulation A, and accordingly, we will file annual reports, semi-annual reports and other information with the SEC. You may read and copy the offering statement, the related exhibits and the reports and other information we file with the SEC at the SEC’s public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, DC 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information regarding the operation of the public reference rooms. The SEC also maintains a website at www.sec.gov that contains reports, information statements and other information regarding issuers that file with the SEC.

You may also request a copy of these filings at no cost, by writing, emailing or telephoning us at:

Hall Structured Finance II, LLC

c/o Mark Blocher

2323 Ross Avenue

Suite 200

Dallas, Texas 75201

www.hallstructuredfinance.com

214-269-9517

Within 120 days after the end of each fiscal year we will electronically provide to our members of record an annual report. The annual report will contain audited financial statements and certain other financial and narrative information that we are required to provide to members. The Company does not intend to send paper copies out of its reports unless requested in writing by a Holder.

We also maintain a website at www.hallstructuredfinance.com where there may be additional information about our business, but the contents of that site are not incorporated by reference in or otherwise a part of this Offering Circular.

PART F/S

FINANCIAL STATEMENTS

Index to Financial Statements

HALL STRUCTURED FINANCE II, LLC
AND SUBSIDIARIES

Consolidated Financial Statements

Nine-Month Periods ended September 30, 2017 and 2016

HALL STRUCTURED FINANCE II, LLC
AND SUBSIDIARIES

Table of Contents

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

See accompanying notes to consolidated financial statements.

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Member's Capital

(Unaudited)

See accompanying notes to consolidated financial statements.

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to consolidated financial statements.

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Hall Structured Finance II, LLC (HSF II) was formed on January 14, 2013 by Hall Phoenix/Inwood, Ltd. (HPI), its sole member. HSF II was formed for the purpose of acting as a private real estate lender, providing capital to third party borrowers in the form of first mortgages, second mortgages, mezzanine loans, and preferred equity structured finance loans, via its controlling interest in its subsidiaries.

The accompanying consolidated financial statements include the accounts of HSF II and the accounts of the entities in which HSF II has a controlling interest (collectively, the Company), and have been prepared on the accrual basis of accounting and conform to U.S. generally accepted accounting principles (U.S. GAAP). The Company considers ownership interests, and the extent of control it exerts, when determining whether or not to consolidate investments. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company does not have any items of other comprehensive income or loss in any period presented.

Noncontrolling interests represent the noncontrolling interest holders’ share of the equity of certain subsidiaries that are consolidated. Net income (loss) is allocated to the noncontrolling interest holders in accordance with the respective subsidiaries’ governing agreements.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Restricted cash represents cash held in escrow for the benefit of borrowers for the payment of future taxes, insurance, and/or deferred maintenance on properties.

The Company maintains cash and cash equivalent balances in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

The Company’s marketable securities comprise investments in mutual funds and individual company stocks. Management classifies its debt and equity securities as available for sale based on their intent. Securities classified as available for sale are recorded at fair value, with unrealized gains and losses excluded from earnings and recorded as other comprehensive income (loss). Realized gains and losses on the sale of marketable securities are determined using the specific identified cost basis.

Management reviews its investment portfolio on an annual basis to determine whether any event or economic circumstance has occurred to indicate if any security is impaired. An unrealized loss exists when the current fair value of a security is less than its amortized cost. Any security with an unrealized loss could result in an impairment. If the Company has made a decision to sell an impaired security or if it is more-likely than-not that the Company will be required to sell an impaired security, than an other than temporary impairment loss would be recorded through income.

Mortgage loans receivable are stated at the amount of unpaid principal, net of unamortized loan commitment fees. The Company’s mortgage loans receivable is primarily comprised of real estate construction loans secured by the borrower’s underlying real estate property. The repayment of the loans is dependent on the borrower’s sale of the property, the availability of permanent financing to the borrower upon completion of the property and its improvements, or the successful operation of the borrower’s business and the sufficiency of collateral. The Company’s mortgage loans receivable has increased credit risk as a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the risks that improvements will not be completed on time in accordance with specifications and projected costs, and the ultimate sale or rental of the property may not occur as anticipated.

Loan commitment fees are amortized over the life of the loan using the straight-line method, which approximates the effective interest method. Accretion of loan commitment fees totaled $1,431,827 and $867,396 for the nine months ended September 30, 2017 and 2016, respectively, which are included in interest income in the accompanying consolidated statements of operations.

At September 30, 2017 and 2016, the Company had $4,789,005 and $2,365,936, respectively, of deferred loan commitment fees, included in mortgage loan receivables in the accompanying consolidated balance sheets are reflected net of the unamortized interest income noted above.

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Interest income is recognized to the extent paid or if the valuation analysis performed on the related receivables supports the collectability of the interest receivable. A loan is placed on nonaccrual when the future collectability of interest and principal is not expected, unless, in the determination of management, the principal and interest on the loan are well collateralized and in the process of collection. When classified as nonaccrual, accrued interest receivable on the loan is reversed and the future accrual of interest is suspended. Payments of contractual interest are recognized as income only to the extent that full recovery of the principal balance of the loan is reasonably certain. At September 30, 2017 and December 31, 2016, management determined that no loans met the nonaccrual classification. On January 1, 2017, the mortgage loan receivable held by Hall CA-NV, LLC was placed on nonaccrual. In September 2017, HSF II sold its interest in Hall CA-NV, LLC (note 3(a)). During the nine-month period ended September 30, 2017, the Company recognized interest income on a cash basis in the amount of $836,985.

Mortgage loans receivables are considered “impaired” when, based on current information and/or events, it is probable the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Management assesses and measures mortgage loans receivable for impairment on an individual loan basis and determines the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s effective interest rate. Generally, when the fair value of the collateral, net of the estimated costs to sell, or the present value of the expected cash flows is less than the recorded investment in the loan, any shortfall is promptly charged off.

An allowance for loan losses on mortgage loans receivable is established through a provision for loan losses charged against income, and includes specific reserves for impaired loans. Loans deemed to be uncollectible are charged against the allowance when management believes that the collectability of the principal is unlikely and subsequent recoveries, if any, are credited to the allowance. Management’s periodic evaluation of the adequacy of the allowance is based on an assessment of the current loan portfolio, including known inherent risks, adverse situations that may affect the borrowers’ ability to repay, the estimated value of any underlying collateral, and current economic conditions. At September 30, 2017 and 2016, management determined that no loans were considered impaired, no loan loss provision or related allowance was necessary, and that all loans were determined to have collateral with a fair value, less the estimated costs to sell, in excess of their respective outstanding loan balances.

Deferred loan costs represent commitment fees, legal, and other third-party costs associated with obtaining commitments for financing, which result in a closing of such financing. Deferred loan costs are deferred and amortized over the life of the loan using the straight-line method, which approximates the effective interest method, and are presented as a direct deduction from the related debt liability in the accompanying consolidated balance sheets. Amortization of deferred loan costs totaled $296,166 and $359,246 for the nine months ended September 30, 2017 and 2016, respectively, which are included in interest expense in the accompanying consolidated statements of operations. At September 30, 2017 and 2016, accumulated amortization of deferred loan costs was $565,649 and $519,150, respectively.

Interest and other related income were recognized when earned, except as noted in Note (1)(i) above. Accounts receivable are reduced by an allowance for estimated uncollectable amounts. The Company determines the allowance by considering a number of factors, including length of time accounts receivable are past due, the previous loss history of the Company, and condition of the general economy and the industry as a whole. Accounts are written off when it is determined the receivable will not be collected. At September 30, 2017 and 2016, there was no allowance for doubtful accounts.

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company is not a tax-paying entity and, accordingly, no provision for federal or state income taxes has been included in the accompanying consolidated financial statements. All income and losses from the Company’s operations is allocated directly to the member, who is individually responsible for reporting its respective shares of the Company’s income or loss on its income tax return.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense, and penalties in general and administrative expenses. Management believes there are no uncertain tax positions at September 30, 2017. The Company’s federal income tax returns for the years 2014 through 2016 are open under the normal three-year statute of limitations, and therefore, are subject to examination.

The marketable securities were assigned by HPI to the Company on September 30, 2017. At September 30, 2017, the fair value of the marketable securities is $20,807,197, which is measured utilizing Level 1 inputs. The Company had no realized gains or losses on the sale of marketable securities during the nine-month periods ended September 30, 2017 and 2016.

Mortgage loans receivable outstanding at September 30, 2017 and 2016 are as follows:

HALL STRUCTURED FINANCE II, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Mortgage loans receivable outstanding at September 30, 2017 and 2016 (continued):