PART II AND III 2 tv537756-1aa.htm 1-A/A tv537756-1aa - block - 41.4944145s
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE INFORMATION IN THIS PRELIMINARY OFFERING CIRCULAR IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE OFFERING STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Amendment #7
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 2020.
PRELIMINARY OFFERING CIRCULAR
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Up to 12,500,000 Shares of CaliberCos Inc. Series B Preferred Stock convertible into
12,500,000 Shares of CaliberCos Inc. Class A Common Stock
Minimum Individual Investment: 500 Shares $2,000.00
CaliberCos Inc., a Delaware corporation (the “Company”, “Caliber”, “us” or “we”), is a leading vertically integrated regional private equity real estate sponsor providing a full suite of traditional real estate services. We own, operate, and invest in real estate both on our own and through our investment management platform. We are offering a minimum number of 250,000 shares of Series B Preferred Stock (the “Series B Preferred Stock”) and a maximum number of 12,500,000 shares of Series B Preferred Stock, convertible into our Class A Common Stock. The offering price of each share of Series B Preferred Stock is $4.00 (the “Offering Price”). The conversion of shares of Series B Preferred Stock into shares of Class A Common Stock is at no additional cost and therefore the Offering Price includes the conversion price. This offering circular qualifies both the shares of Series B Preferred Stock offered hereby and the shares of Class A Common Stock issuable upon conversion of such shares.
This offering is being conducted on a “best-efforts” basis. We intend to offer and sell our Series B Preferred Stock in this offering to accredited investors and non-accredited investors. We have engaged SI Securities, LLC to serve as our lead placement agent and managing broker-dealer to assist in the placement of our Series B Preferred Stock. We will pay SI Securities, LLC in accordance with the terms of an Issuer Agreement between the Company and SI Securities, LLC, a copy of which is filed as an exhibit to the Offering Statement of which this Offering Circular is a part. SI Securities, LLC may engage sales agents in connection with the offering to assist with the placement of our Series B Preferred Stock. The Company and its officers will not receive any commission or any other remuneration for any sales of Series B Preferred Stock. See “Plan of Distribution”.
The aggregate initial offering price of Series B Preferred Stock will not exceed $50,000,000 in any 12-month period. We expect to offer Series B Preferred Stock in this offering until the earlier of  (i) the date at which the maximum offering amount has been sold; (ii)            , 2021, the date that is 12 months from the date that this offering is qualified by the U.S. Securities and Exchange Commission (the “Commission) or (iii) the date at which the offering is earlier terminated by the Company in its sole discretion, which may occur at any time. The Company will undertake closings at least once a month on the first business day of each month once the minimum offering amount is sold. After each closing, funds tendered by investors will be made available by The Bryn Mawr Trust Company of Delaware (“Bryn Mawr”) to the Company. The Company has engaged Bryn Mawr as escrow agent to hold funds tendered by investors. In the event we have not sold the minimum amount of shares by the earlier of  (i) the date that is six months from the date that this offering is qualified by the Commission; or (ii) the date the offering has been terminated by the Company, any money tendered by potential investors will be promptly returned by Bryn Mawr.
The proceeds of this offering will be used primarily for general corporate purposes, including repayment of indebtedness and the cost of this offering. Approximately $7.8 million will be used to redeem shares of Class A Common Stock held by our executive management team and a significant beneficial owner on a pro rata basis. The per share price of the shares to be so redeemed is equal to the per share price of the shares of Series B Preferred Stock offered by means of this offering circular. Management believed the repurchase price represented the fair market value of the shares to be so redeemed. No shares shall be redeemed until an aggregate of  $5.0 million of shares offered pursuant to this offering circular have been purchased and after an aggregate of  $25.0 million of shares offered pursuant to this offering circular have been purchased, no additional shares of Class A Common Stock held by such persons. In connection therewith, an applicable number of shares of Class B Common Stock held by members of our executive management team will convert on a one-for-one basis into shares of Class A Common Stock to be so redeemed. See “Use of Proceeds”. For a description of the total amount each individual member of our executive management team and a significant beneficial owner will receive if the Company’s raises $25 million, see “Interest Of Management and Others in Certain Transactions — Repurchase and Redemption of Shares.”
The Series B Preferred Stock has limited rights, preferences and privileges which are substantially unlike traditionally offered shares of preferred stock. For more information on the shares of Series B Preferred Stock being offered, see “Securities Being Offered — Series B Preferred Stock”.
Series B Preferred Stock may be purchased by accredited investors and non-accredited investors. This offering circular does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sales of Series B Preferred Stock in any states where such offer or solicitation would be unlawful, prior to registration or qualification under the laws of any such state.

Price to Public
Underwriter discount
and commissions(1)
Proceeds to
Company(2)
Per Share
$ 4.00 $ 0.28 $ 3.72
Total Minimum
$ 1,000,000 $ 70,000 $ 930,000
Maximum Offering Amount
$ 50,000,000 $ 3,500,000 $ 46,500,000
(1)
SI Securities, LLC intends to use an online platform provided by SeedInvest Technology, LLC, an affiliate of SI Securities, LLC, at the domain name www.seedinvest.com (the “Online Platform”) to provide technology tools to allow for the sales of securities in this offering. With respect to any sales of Series B Preferred Stock made through the Online Platform. SI Securities, LLC will charge you a non-refundable transaction fee equal to 2% of the amount you invest (up to $300) at the time you subscribe for our shares. Investors are able to make investments directly with the Company outside of the Online Platform; no such fee will be payable to SI Securities, LLC in connection with any such direct investments. See “Plan of Distribution” for details of compensation and transaction fees to be paid to SI Securities, LLC and sales agents that may be engaged by SI Securities, LLC.
(2)
Aggregate offering expenses payable by us, excluding underwriting discount and commissions, are estimated to be approximately $2,700,000 if all shares offered are sold.
We are an “emerging growth company” under applicable Commission rules and will be subject to reduced public company reporting requirements. This Offering Circular follows the disclosure format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF 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.
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 is inherently risky. See “Risk Factors” on page 8.
The approximate date of the proposed sale to the accredited and non-accredited investors is as soon as practicable after the offering is qualified by the Commission.
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 SUCH STATE. THE COMPANY MAY ELECT TO SATISFY ITS OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF THE COMPANY’S 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.

Table of Contents
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F-1
III-1
III-3
i

SUMMARY
This summary highlights information contained elsewhere in this offering circular and does not contain all of the information that may be important to you. You should read this entire offering circular carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes.
Please note that Caliber is not a traditional fund or asset manager but is instead a private equity sponsor that does not render investment advice to any investors in our Caliber sponsored projects. In this offering circular, we (i) refer to our Caliber sponsored projects in this prospectus as “funds”, (ii) refer to deferred compensation that we receive from our Caliber sponsored projects as “carried interests” and (iii) refer to total project assets as “Assets Under Management” or “AUM” despite our not possessing discretionary authority over such amounts nor do we render investment advice or hold ourselves out as investment advisors.
Unless the context otherwise requires, we use the terms “Caliber”, “Company”, “we”, “us” and “our” in this offering circular to refer to Caliber, a Delaware corporation.
General
We are a leading, vertically integrated regional private equity real estate sponsor providing a full suite of traditional real estate services. We own, operate, and invest in real estate both on our own and through our individual operating companies. We manage all aspects of the real estate investment deal continuum including fundraising, asset acquisition, construction and development, property management, asset management, brokerage services, and asset disposition.
For June 30, 2019 updates see “Recent Update” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
Since inception through December 31, 2018, we have raised approximately $283 million of capital from accredited investors and purchased real property at cost for an aggregate purchase price of approximately $237 million. Our aggregate net capital raised has increased at an average annual growth rate of 39% (from $29 million to $144 million) over the five-year period ended December 31, 2018. Caliber’s acquisition strategy and ability to successfully raise investment capital resulted in revenue of  $70.7 million and adjusted EBITDA of  $2.4 million for the year ended December 31, 2018, a year over year increase from 2017 of 10% and 2%, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cautionary Statement Regarding Non-GAAP Measures” for a discussion of the components of adjusted EBITDA. As of December 31, 2018, none of our sponsored programs had suffered any loss of principal or projected interest; however, there can be no assurance that such performance will continue in the future.
At December 31, 2018 and 2017, our assets under management, or AUM of real property at cost, was approximately $249 million and $214 million, respectively, our capital under management, or Capital AUM was approximately $144 million and $107 million, respectively, and the value of our real property portfolio, or Fair Value AUM was approximately $375 million and $279 million, respectively. The following table summarizes the growth that we have experienced over the past two years, using a roll forward of market value of assets under management.
Year Ended
December 31,
2018
2017
Consolidated Results
Total AUM Rollforward – @ Fair Value
Balance, Beginning
$ 278,572,186 $ 204,112,874
Assets Acquired
29,957,391 17,943,621
Construction/Renovation
13,016,662 25,421,170
Market Appreciation/(Depreciation)
64,926,964 42,339,202
Assets Sold
(11,916,203 ) (11,244,681 )
Balance, End
$ 374,557,000 $ 278,572,186
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We have experienced significant growth in our asset portfolio and we expect to see increased growth and performance under the Caliber model (a significant driver of this growth is the release of our qualified opportunity zone fund, the Caliber Tax Advantaged Opportunity Zone Fund, or CTAF, that we have formed under the Opportunity Zone Provisions of the federal tax legislation. Investment of realized capital gains in the fund provides investors with potentially significant tax deferral and tax savings benefits. See page 30 for additional details). Our model puts our investors’ profit first. Unlike many other traditional asset managers, our annual fees are not influenced by the size of AUM (however, similar to traditional asset managers, we do earn a 35% carried interest on assets sold).
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund Management, Construction and Development, Property Management and Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). Each segment works closely together and plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments, generating proprietary transaction flow and creating value through efficient implementation of asset management strategies. We primarily earn revenue from our eight segments as follows:

Fund Management.   Fund management and similar fees earned for managing a Caliber sponsored fund. This includes an annual fee that is generally structured as a percentage of the capital raised into the fund, a one-time fee earned from raising member interests into a Caliber sponsored fund, and income generated from distribution and returns of capital from investments.

Construction and Development.   Fees and other charges earned as the general contractor on construction and remodeling services provided to our funds and other third parties.

Property Management.   Revenues and fees for property management services provided by the Company for third-party-owned properties, are generally based upon percentages of the rental revenue or base gross rent generated by such properties. Property management revenue also includes fees charged to third-party property management customers for leasing commissions, which are generally a flat fee or based on the amount of the new lease executed, with a minimum flat fee.

Brokerage.   We earn real estate brokerage commissions by acting as a broker for residential and commercial real estate owners and investors seeking to buy or sell properties, including investment properties, as well as primary residences. The brokerage additionally earns fees by acting as the broker of record in the acquisition and disposition of Company or fund assets.

Real Estate Sales.   Sales proceeds from the sale of our single-family homes.

Hospitality Revenue.   Revenues generated primarily by the rental operations of the hotel properties we own or manage. This primarily consists of revenue earned from room rentals, food and beverage sales, banquet and group sales and other hotel operating activities.

Rental Income.   Revenues generated primarily by the rental operations of the residential (multi-family and single-family), and commercial properties we own or manage.

Other.   Other revenues consist primarily of fees and other amounts received from third parties, earned in connection with services rendered by the Company for certain real estate transactions. In addition, sales of our assets from the Company’s portfolios or funds.
Our revenues have grown primarily as a result of growth in our asset base and service offerings. This has resulted in increased fees from assets under management, additional fees from new services, increased investment from our existing and new investors, and increased average investment size. We anticipate that our future growth will continue to depend in part on attracting new investors to our new and existing funds. We expect that many investors will be particularly interested in investing in our qualified opportunity zone fund, CTAF, based on considerable tax deferral and savings benefits provided from this type of investment under the Opportunity Zone Provisions. See page 30 for additional details regarding this fund. We plan to increase our sales and marketing spend to attract investors as well as continue to identify and acquire
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opportunistic real estate assets, using appropriate leverage. As we have invested more resources into our sales and marketing divisions and demonstrated success with previously completed deal cycles, we expect to be able to increase the velocity of investment dollars into our funds at a faster rate than in the past.
The following information summarizes the trend in our real estate services revenues and EBITDA for the past four years as a result of deploying this strategy.(1)
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(1)
Unconsolidated real estate services represent the combined performance of all of Caliber’s real estate services segments and certain legacy assets that are wholly owned by the Company (i.e. Caliber Auction Homes) which are included as a portion of the Residential Segment. This presentation reflects the underlying performance of the private equity real estate sponsor.
We have historically financed our operations primarily through a combination of operating cash flows, private offerings of our equity securities, and secured and unsecured debt. At December 31, 2018, we had approximately $7.3 million in corporate debt which carries interest rates ranging from 8.25% to 12.0%, resulting in approximately $0.9 million in interest expense for the year. We plan on using approximately $7.3 million of the net proceeds of this offering to eliminate this debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. For this reason, we believe we will be able to recognize substantial cost savings and generate increased cash flow from core operations, as well as enabling us to introduce more affordable financing from traditional sources to take advantage of market opportunities which may have previously been unavailable.
Recent Update
From January 1, 2019 through June 30, 2019, we have raised approximately $43.2 million of capital from accredited investors and purchased and improved real estate at a cost of  $24.1 million. At June 30, 2019, we had committed capital in the form of cash on hand totaling $19.6 million across multiple asset classes. At June 30, 2019, our AUM consisted of  $259.4 million of real property and our capital under management was $184.5 million. At June 30, 2019, none of our sponsored programs had suffered any loss of principal or projected interest; however, there can be no assurance that such performance will continue in the future.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of activities for our consolidated and segment operations.
Strategy and Competitive Strengths
We are focused on creating wealth for our clients by providing access to high quality real estate investments. Caliber believes that capital organized privately into structured funds offers investors an optimal balance of risk-adjusted return and investment performance. By allowing investors, who may not otherwise be able to purchase a large asset, to participate with a minimum investment as low as $35,000, Caliber provides typical real estate investors access to sophisticated strategies and assets that they may not otherwise have.
While Caliber’s business model is in part analogous to that of a financial asset manager, our model is built on a full-service approach. We have complemented traditional asset management functions with construction, property management, and deal expertise that we believe creates a competitive advantage
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against other traditional asset managers’ models. Compared to non-traded REITs that often come with high cost structures for investors, we offer reduced product origination costs and fund-level fees. By eliminating many of the fees earned at the fund level, and sizing the remaining fees to cover Company overhead, Caliber aligns its profitability with that of its investors. For example, rather than charge a fund-level acquisition fee, as many non-traded REITs do, and then further hire and pay third party real estate brokers, Caliber eliminates the fund-level fee and acts as the broker directly, earning at or below market commissions. Similarly, as opposed to charging the fund a construction management fee and then further hire a third party general contractor, Caliber acts as the general contractor, controls the project, and eliminates the double layer of fees. We believe our approach allows us to drive down the cost burden that is borne by funds under a traditional asset management model, increase returns to investors of those funds, and generate long-term sustainable cash flows.
In addition, under Caliber’s approach, we distribute cash to fund investors where there is either: ( a) current income from the investments (rents, etc.) or (b) a capital event, such as a sale of an asset or a cash-out refinance. We see substantial opportunity in ensuring distributions are paid from asset income, not investor contributions or borrowed funds. Caliber’s approach offers investors, and their wealth managers, well-structured products with a management team aligned to their success.
Our competitive strengths include:

Extensive relationship and sourcing network.   We leverage our real estate services businesses in order to source deals for our funds. In addition, our management has extensive relationships with major industry participants in each of the markets in which we currently operate. Their local presence and reputation in these markets have enabled them to cultivate key relationships with major holders of property inventory, in particular, financial institutions, throughout the real estate community.

Targeted market opportunities.   We focus on markets that have a long-term trend of population growth and income improvement, with a particular focus on Arizona, Colorado, Nevada and Utah, which are states with business and investment-friendly state and local governments. We generally avoid engaging in direct competition in over-regulated and saturated markets.

Structuring expertise and speed of execution.   Prior real property acquisitions completed by us have taken a variety of forms, including direct property investments, joint ventures, participating loans and investments in performing and non-performing mortgages with the objective of long-term ownership. We believe we have developed a reputation of being able to quickly execute, as well as originate and creatively structure acquisitions, dispositions and financing transactions.

Vertically integrated platform for operational enhancement.   We have a hands-on approach to real estate investing and possess the local expertise in property management, leasing, construction management, development and investment sales, which we believe enable us to invest successfully in select submarkets.

Focus on the middle market.   Our focus on middle market opportunities offers our investors significant alternatives to active, equity investing that provide attractive returns to investors. This focus has allowed us to offer a diversified range of real estate investment opportunities, particularly for accredited investors.

Risk protection and investment discipline.   We underwrite our investments based upon a thorough examination of property economics and a critical understanding of market dynamics and risk management strategies. We conduct an in-depth sensitivity analysis on each of our acquisitions. This analysis applies various economic scenarios that include changes to rental rates, absorption periods, operating expenses, interest rates, exit values and holding periods. We use this analysis to develop our disciplined acquisition strategies.
Caliber was originally founded as Caliber Companies, LLC, organized under the laws of Arizona, and commenced operations in January 2009. In 2015, the Company was reorganized as Caliber Inc. as a Nevada corporation. In June 2018, we reincorporated in the State of Delaware. Our corporate office is located at
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8901 E. Mountain View Rd., Ste 150, Scottsdale, Arizona 85258. Our telephone number is (480) 295-7600. Our website address is www.caliberco.com. We do not incorporate information on or accessible through our website into this offering circular, and you should not consider any information on, or that can be accessed through our website as a part of this offering circular.
In June 2019 we amended and restated our certificate of incorporation to (i) effect the authorization of Class A Common Stock and Class B Common Stock, which is identical in all respects to Class A Common Stock, but is entitled to 10 votes per share and is convertible at any time on a one-for-one basis into shares of Class A Common Stock, (ii) reclassify all shares of Common Stock owned by Jennifer Schrader, our President and Chief Operating Officer, and John C. Loeffler, II, our Chief Executive Officer, into Class B Common Stock.
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The Offering
Securities offered by the
Company
Up to 12,500,000 shares of Series B Preferred Stock convertible into Class A Common Stock at a ratio of 1:1, offered by the Company on a best-efforts basis.
Series B Preferred Stock
Series B Preferred Stock offered by the Company is priced at $4.00 per share for the duration of this offering. The Series B Preferred Stock has limited rights, preferences and privileges substantially unlike traditionally offered shares of preferred stock. For more information on the shares of Series B Preferred Stock being offered, see “Securities Being Offered — Series B Preferred Stock.”
Principal Amount of Series B Preferred Stock
We will not issue securities hereby having gross proceeds in excess of $50 million nor will we issue any securities under Regulation A having gross proceeds in excess of  $50 million, during any 12-month period. The securities we offer hereby will be offered on a continuous basis.
Regulation A Tier
Tier 2
Series B Preferred Stock Purchasers
Accredited investors pursuant to Rule 501 and non-accredited investors. Pursuant to Rule 251(d)(2)(C), non-accredited investors who are natural persons may only invest the greater of 10% of their annual income or net worth. Non-natural non-accredited persons may invest up to 10% of the greater of their net assets or revenues for the most recently completed fiscal year.
Securities outstanding prior to this Offering Circular
15,495,212 shares of Class A Common Stock, 12,474,692 shares of Class B Common Stock, and 1,657,396 shares of Series A Preferred Stock are outstanding as of November 30, 2019(1).
Manner of Offering
We have engaged SI Securities, LLC to serve as our lead placement agent and managing broker-dealer to assist in the placement of our securities. We will pay SI Securities, LLC in accordance with the terms of an Issuer Agreement between the Company and SI Securities, LLC, a copy of which is filed as an exhibit to the Offering Statement of which this Offering Circular is a part. SI Securities, LLC may also engage sales agents in connection with the offering to assist with the placement of securities. See “Plan of Distribution.”
Market for Series B Preferred Stock
There is no public market for the shares of Series B Preferred Stock or the shares of Class A Common Stock into which the Series B Preferred Stock is convertible. We will covenant to use our best efforts to cause our Class A Common Stock to be listed on a national securities exchange or the OTC within 12 months of the completion of this offering. However, there can be no assurance that we will be able to obtain such listing, or if we do obtain it, that a market will ever develop.
Use of Proceeds
If we receive $50,000,000 of gross proceeds from the sale of our securities under this offering circular, we estimate our net proceeds, after deducting estimated expenses, will be approximately $43,800,000. The proceeds of this offering will be used primarily for general corporate purposes, including repayment of indebtedness and the cost of this offering. Approximately $7.8 million will be used to redeem shares of Class A Common Stock held by our
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executive management team and a significant beneficial owner on a pro rata basis. The per share price of the shares to be so redeemed is equal to the per share price of the shares of Series B Preferred Stock offered by means of this offering circular. Management believed the repurchase price represented the fair market value of the shares to be so redeemed. No shares shall be redeemed until an aggregate of  $5.0 million of shares offered pursuant to this offering circular have been purchased and after an aggregate of $25.0 million of shares offered pursuant to this offering circular have been purchased, no additional shares of Class A Common Stock held by such persons.(2) See “Use of Proceeds.” For a description of the total amount each individual member of our executive management team and a significant beneficial owner will receive if the Company’s raises $25 million, see “Interest Of Management and Others in Certain Transactions- Repurchase and Redemption of Shares.”
Termination of the Offering
The offering will terminate upon the earlier of  (i) such time as all of the shares of Series B Preferred Stock have been sold pursuant to this offering circular; (ii) the date that is 12  months from the date that this offering is qualified by the Commission or (iii) the date at which the offering is earlier terminated by the Company in its sole discretion, which may occur at any time, we reserve the right to terminate the offering at any time and for any reason, without notice to or consent from any purchaser of shares of Series B Preferred Stock in the offering.
Selected Risks Associated with Our Business
Our business is subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this summary. These risks include, but are not limited to, the following:

Our business could be harmed by an economic slowdown and downturn in real estate asset values, property sales and leasing activities.

Poor performance of our funds would cause a decline in our revenue and results of operations and could adversely affect our ability to raise capital for future funds.

Decreases in the performance of the properties we manage are likely to result in a decline in the amount of property management fees and leasing commissions we generate.

Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition.

The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.

The Company is controlled by its executive officers.

There is no current market for any of our shares of stock.
(1)
Does not give effect to (i) the conversion of shares of Series A Preferred Stock to Class A Common Stock, (ii) conversion of convertible debt securities into Class A Common Stock, (iii) vesting of any issued and outstanding Class A Common Stock, (iv) exercise of any warrants or stock options outstanding as of November 30, 2019 and (iv) the possible issuance of shares of Class A Common Stock to a prior consultant as further described in “Risk Factors — Your relative ownership interest may experience additional dilution as a result of a recently filed complaint” (the “Consultant Dispute”).
(2)
In connection therewith, an applicable number of shares of Class B Common Stock held by members of our executive management team will convert on a one-for-one basis into shares of Class A Common Stock to be so redeemed.
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RISK FACTORS
Investing in Series B Preferred Stock involves a high degree of risk, and no assurance can be given that you will realize your investment objectives or that you will not lose your entire investment in our shares. You should carefully consider the following risks and uncertainties in addition to all other information included in this Offering Circular before purchasing shares of Series B Preferred Stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. You should invest in Series B Preferred Stock only if you can afford to lose your entire investment.
You should carefully review this section for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. YOU SHOULD CONSULT WITH YOUR ATTORNEY OR FINANCIAL ADVISOR PRIOR TO MAKING AN INVESTMENT.
Risks Related to Our Business
The success of our business is significantly related to general economic conditions and the real estate industry, and, accordingly, our business could be harmed by an economic slowdown and downturn in real estate asset values, property sales and leasing activities.
Our business is significantly related to general economic conditions in the real estate industry. The real estate markets in which we operate are cyclical and depend on national and local economic conditions. Many factors that are beyond our control affect the real estate market and could affect our ability to sell properties and other investments for the price, on the terms or within the time frame desired. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. In addition, the economic condition of each local market where we operate may depend on one or more key industries within that market, which, in turn, makes our business sensitive to the performance of those industries.
We have in the past and expect in the future to be negatively impacted by, periods of economic slowdown or recession, and corresponding declines in the demand for real estate and related services, within the markets in which we operate. The previous recession and the downturn in the real estate market resulted in and may in the future result in:

a decline in actual and projected sale prices of real estate properties;

higher interest rates, higher loan costs, less desirable loan terms and a reduction in the availability of mortgage loans;

a decrease in the availability of lines of credit and other sources of capital used to purchase real estate investments; and

a general decline in rents due to defaulting tenants or less favorable terms for renewed or new leases.
We could lose part or all of our investments in real estate assets, which could have a material adverse effect on our financial condition and results of operations.
There is the inherent possibility in all of our real estate investments that we could lose all or part of our investment. Real estate investments are generally illiquid, which may affect our ability to change our asset mix in response to changes in economic and other conditions. The value of our investments can also be diminished by:

civil unrest, acts of war and terrorism and acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured or underinsured losses);

the impact of present or future legislation (including environmental regulation, changes in laws concerning foreign ownership of property, changes in tax rates, changes in zoning laws and laws requiring upgrades to accommodate disabled persons) and the cost of compliance with these types of legislation;
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liabilities relating to claims, to the extent insurance is not available or is inadequate.
The historical returns attributable to our funds should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our Stock.
An investment in our Series B Preferred Stock is not an investment in any of our funds. You should not conclude that positive performance of our funds will necessarily result in positive returns on an investment in our Series B Preferred Stock. The historical performance of our funds is relevant to us primarily insofar as it is indicative of management fees we have earned in the past and may earn in the future and our reputation and ability to raise new funds.
In addition, the historical returns of our funds may not be indicative of any future returns of these or from any future funds we may raise due for a number of factors including:

market conditions during previous periods may have been more favorable for generating positive performance than the market conditions we may experience in the future; and

our funds’ returns may have previously benefited from investment opportunities and general market conditions that may not recur, and we may not be able to achieve the same returns or profitable investment opportunities or deploy capital as quickly.
We incur risks with respect to each segment of our business. The decline of any single segment could impact our business.
We derive revenues in substantial part from:

construction and development fees, which are based on the work completed on our fund assets or other third-party projects;

capital raising fees, which are based generally on the amount of capital raised into or invested in our funds;

fund management fees, which are based generally on the amount of capital committed to or invested in our funds;

property management fees are derived from overseeing the day to day operation of properties we acquire and sell; and

brokerage commissions derived from the purchase and sale of properties for our funds and others.
The reduction of slowdown in investment and development activities in any of these segments could have a material adverse effect on our business and results of operations.
Risks Related to Fund Management
Poor performance of our funds would cause a decline in our revenue and results of operations and could adversely affect our ability to raise capital for future funds.
If a fund performs poorly, we risk receiving little or no fund management fees with regards to the fund and little income or possibly losses from such fund. In addition, poor fund performance may deter future investment in our funds, thereby decreasing the capital invested in our funds and thus, our management fee income. Alternatively, in the event of poor fund performance, investors could demand lower fees or fee concessions for existing or future funds which would likewise decrease our revenue.
A portion of our revenue, net income and cash flow is variable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis.
A portion of our revenue, net income and cash flow is variable, as the completion of the sale of assets and earning of any carried interest that we receive from our funds can vary from quarter to quarter and year to year. In addition, investment income that we may earn from our funds are volatile.
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The timing and amount of asset sales and the earning of any carried interest are uncertain and contribute to the volatility of our results. It takes a substantial period of time to identify attractive investment opportunities, to raise funds needed to make an investment and then to realize the cash value or other proceeds of an investment through a sale, recapitalization or other exit. Even if an investment proves to be profitable, it may be several years before any profits can be realized in cash or other proceeds. We cannot predict when, or if, any realization of a return on investments will occur. If we were to have a realization event in a particular quarter or year, it may have a significant impact on our results for that particular quarter or year that may not be replicated in subsequent periods. We recognize revenue on investments in our funds only when earned or realized.
With respect to our funds that generate carried interest, the timing and receipt of such carried interest varies with the life cycle of our funds and/or achieving certain minimum cash flow hurdles. We receive carried interest payments only upon realization of achieving certain minimum investment returns by the relevant fund, which contributes to the volatility of our cash flow.
We may be subject to litigation risks and may face liabilities and damage to our professional reputation as a result.
We make investment decisions on behalf of investors in our funds that could result in substantial losses. This may subject us to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty or breach of contract. Further, we may be subject to third-party litigation arising from allegations that we improperly exercised control or influence over portfolio investments.
Legal liability could have a material adverse effect on our businesses, financial condition or results of operations or cause reputational harm to us, which could harm our businesses. We depend, to a large extent, on our business relationships and our reputation for integrity and professional services to attract and retain investors and to pursue investment opportunities for our funds. As a result, allegations of improper conduct by private litigants or regulators, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the investment industry in general, whether or not valid, may harm our reputation, which may be damaging to our businesses.
Risks Related to Property Management and the Maintenance and Development of Real Estate Assets
Decreases in the performance of the properties we manage are likely to result in a decline in the amount of property management fees and leasing commissions we generate.
Our property management fees are generally structured as a percentage of the revenues generated by the properties that we manage, and our leasing commissions typically are based on the value of the lease commitments. As a result, our revenues are adversely affected by decreases in the performance of the properties we manage and declines in rental value. Property performance depends upon, among other things, our ability to control operating expenses (some of which are beyond our control) and financial conditions generally and in the specific areas where properties are located and the condition of the real estate market generally. If the performance or rental values of the properties we manage decline, our management fees and leasing commissions from such properties could be materially adversely affected.
The concentration of our funds’ investments in a limited number of regions and sectors may make our funds’ business vulnerable to adverse conditions in such regions and to a downturn or slowdown in the sectors. As a result, our funds’ investments may lose value and they may experience losses.
We invest primarily in real estate assets located in a limited number of geographic locations, specifically, in the Phoenix and Tucson, Arizona marketplaces. Investing in a limited number of regions carries the risks associated with significant geographical concentration. Geographic concentration of properties exposes our projects to adverse conditions in the areas where the properties are located, including general economic downturns, increased competition, real estate conditions, terrorist attacks, potential impacts from labor disputes, and natural disasters occurring in such markets. Such major, localized events in our primary investment areas could adversely affect our business and revenues, which would adversely affect our results of operations and financial condition.
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Our property portfolios are comprised primarily of hospitality, commercial, and multifamily and single-family rental properties and development projects. As a result, we are subject to risks inherent in investments in such types of property. The potential effects on our revenue and profits resulting from a downturn or slowdown in these sectors could be more pronounced than if we had more fully diversified our investments.
We may be unsuccessful in developing or renovating the properties we acquire, resulting in investment losses.
Part of our investment strategy is to locate and acquire real estate assets that are yet undeveloped or which we believe are undervalued and to improve them to increase their resale value. Acquiring properties that are not yet developed or in need of substantial renovation or redevelopment is subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns and our builder’s ability to build in conformity with plans, specifications, budgeted costs and timetables. In addition, there is a risk that we overestimate the value of the property or that the cost or time to complete the renovation or redevelopment will exceed the budgeted amount. Such delays or cost overruns may arise from:

shortages of materials or skilled labor;

a change in the scope of the original project;

difficulty in obtaining necessary zoning, land-use, environmental, building, occupancy and other governmental permits and authorizations;

the discovery of structural or other latent defects in the property after we acquire the property; and

delays in obtaining tenants.
Any failure to complete a development or renovation project in a timely manner and within budget or to sell or lease the project after completion could have a material adverse effect upon our business, results of operation and financial condition. In addition, we hire and supervise third-party contractors to provide construction and engineering services for our properties. While our role is limited to that of a supervisor, we may be subjected to claims for construction defects or other similar actions. Adverse outcomes from litigation could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to potential environmental liability.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the clean-up of hazardous or toxic substances and may be liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by governmental entities or third parties in connection with the contamination. Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances, even when the contaminants were associated with previous owners or operators. The costs of investigation, remediation or removal of hazardous or toxic substances may be substantial, and the presence of those substances, or the failure to properly remediate those substances, may adversely affect the owner’s or operator’s ability to sell or rent the affected property or to borrow using the property as collateral. The presence of contamination at a property can impair the value of the property even if the contamination is migrating onto the property from an adjoining property. Additionally, the owner of a site may be subject to claims by parties who have no relation to the property based on damages and costs resulting from environmental contamination emanating from the site.
In connection with the direct or indirect ownership, operation, management and development of real properties, we may be considered an owner or operator of those properties or as having arranged for the disposal or treatment of hazardous or toxic substances. Therefore, we may be potentially liable for removal or remediation costs.
Before consummating the acquisition of a particular piece of real property, it is our policy to retain independent environmental consultants to conduct an environmental review of the real property, including performing a Phase I environmental review. These assessments typically include, among other things, a
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visual inspection of the real properties and the surrounding area and a review of relevant federal, state and historical documents. It is possible that the assessments we commission do not reveal all environmental liabilities or that there are material environmental liabilities of which we are currently unaware. Future laws, ordinances or regulations may impose material environmental liability and the current environmental condition of our properties may be affected by tenants, by the condition of land or operations in the vicinity of those properties, or by unrelated third parties. Federal, state, and local agencies or private plaintiffs may bring actions against us in the future, and those actions, if adversely resolved, may have a material adverse effect on our business, financial condition and results of operations.
Actions of any joint venture partners that we may have could reduce the returns on joint venture investments.
At times we enter into joint ventures or partnerships to acquire and develop properties. Such investments may involve risks not otherwise present with other methods of investment, including:

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

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

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

that disputes between us and our co-venturer, or partner may result in litigation or arbitration that would increase expenses.
Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment.
Our leasing activities depend on various factors, including tenant occupancy and rental rates, which, if adversely affected, could cause our operating results to suffer.
A significant portion of our property management business involves facilitating the leasing of commercial and residential space. Our revenues may be adversely affected if we fail to promptly find tenants for substantial amounts of vacant space, if rental rates on new or renewal leases are significantly lower than expected, or if reserves for costs of re-leasing prove inadequate. A default or termination by a commercial tenant or a large number of residential tenants on their lease payments would cause us to lose the revenue associated with such leases and require us to find an alternative source of revenue to meet mortgage payments, if any, and prevent a foreclosure. In the event of a significant tenant default we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing such property. If significant tenants default on or terminate a lease, we may be unable to release the property for the rent previously received or sell the property without incurring a loss.
Our reliance on third-parties to operate certain of our properties may harm our business.
In some instances, we rely on third-party property managers and hotel operators to manage our properties. These third parties are directly responsible for the day-to-day operation of our properties with limited supervision by us, and they often have potentially significant decision-making authority with respect to those properties. These third parties may fail to manage our properties effectively or in accordance with their agreements with us, may be negligent in their performance and may engage in criminal or fraudulent activity. If any of these events occur, we could incur losses or face liabilities from the loss or injury to our property or to persons at our properties. In addition, disputes may arise between us and these third-party managers and operators, and we may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective service providers to operate and manage the relevant properties.
We are also parties to hotel management agreements under which unaffiliated third-party property managers manage our hotel properties. If any of these events occur, our relationships with any franchisors may be damaged, we may be in breach of our franchise agreement, and we could incur liabilities resulting from loss or injury to our property or to persons at our properties. In addition, from time to time, disputes may arise between us and our third-party managers regarding their performance or compliance with the
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terms of the hotel management agreements, which in turn could adversely affect us. If we are unable to resolve such disputes through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to third-party dispute resolution, the expense of which may be material and the outcome of which may harm our business, operating results or prospects.
Competition with third parties in acquiring and leasing properties and other real estate investments may reduce our profitability.
We face significant competition with respect to the acquisition of properties, including REITs, insurance companies, commercial banks, private investment funds, hedge funds, specialty finance companies, online investment platforms and other investors, many of which have greater resources than us. We may not be able to compete successfully for investments. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we acquire properties at higher prices, our funds’ returns will be lower, and the value of their assets may not increase or may decrease significantly below the amount paid for such assets.
Any apartment communities we may acquire competes with numerous housing alternatives in attracting residents, including single-family homes, as well as owner occupied single- and multifamily homes available to rent. Competitive housing in a particular area and the increasing affordability of owner occupied single- and multifamily homes available to rent or buy caused by declining mortgage interest rates and government programs to promote home ownership could adversely affect our ability to attract or retain residents or increase or maintain rents.
We could lose part or all of our investments in real estate assets, which could have a material adverse effect on our financial condition and results of operations.
Real estate investments are generally illiquid, which may affect our ability to change our portfolio in response to changes in economic and other conditions. Moreover, we may not be able to unilaterally decide the timing of the disposition of an investment, and as a result, we may not control when and whether any gain will be realized or loss avoided. The value of our investments can also be diminished by:

civil unrest, acts of war and terrorism and acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured or underinsured losses);

the impact of present or future legislation including environmental regulation, changes in laws concerning foreign ownership of property, changes in tax rates, changes in zoning laws and laws requiring upgrades to accommodate disabled persons) and the cost of compliance with these types of legislation; and

liabilities relating to claims, to the extent insurance is not available or is inadequate.
In the event that we underestimate the risks relative to the price we pay for a particular investment, we may experience losses with respect to such investment.
Risks Related to our Real Estate and Securities Brokerage Services
If we fail to comply with laws and regulations applicable to us in our role as a real estate or securities broker, property/facility manager or developer, we may incur significant financial penalties.
We are subject to numerous federal, state, local and foreign laws and regulations specific to the services we perform in our brokerage business, as well as laws of broader applicability, such as tax, securities and employment laws. Brokerage of real estate sales and leasing transactions require us to maintain applicable licenses in each state in which we perform these services. If we fail to maintain our licenses or conduct these activities without a license, or violate any of the regulations covering our licenses, we may be required to pay fines, return commissions received or have our licenses suspended or revoked.
As a licensed real estate broker, we and our licensed employees are subject to certain statutory due diligence, disclosure and standard-of-care obligations. Failure to fulfill these obligations could subject us or our employees to litigation from parties who purchased, sold or leased properties that we brokered or managed. In addition, we may become subject to claims by participants in real estate sales claiming that we did not fulfill our statutory obligations as a broker.
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Risks Related to Our Company
Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus could result in additional burdens on our business. Changes in tax law and other legislative or regulatory changes could adversely affect us.
Our fund management, property management and brokerage businesses are subject to extensive regulation. We are subject to regulation, including periodic examinations, by governmental and self-regulatory organizations in the jurisdictions in which we operate. Many of these regulators are empowered to conduct investigations and administrative proceedings that can result in fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or investment adviser from registration or memberships. Even if an investigation or proceeding did not result in a sanction or the sanction imposed against us or our personnel by a regulator were small in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm our reputation and cause us to lose existing clients or fail to gain new fund management or financial advisory clients. In addition, we regularly rely on exemptions from various requirements of the U.S. Securities Act of 1933, as amended, or the Securities Act, the Exchange Act, the U.S. Investment Company Act of 1940, as amended, or the Investment Company Act, and the U.S. Employee Retirement Income Security Act of 1974, as amended, in conducting our fund management activities. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third-party claims and our business could be materially and adversely affected. If we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as conducted and could have a material adverse effect on our business.
In addition, we may be adversely affected as a result of new or revised legislation or regulations imposed by governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.
If we were deemed to be an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our businesses as conducted and could have a material adverse effect on our businesses.
An entity will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:

it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or

absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Our exemptions from the registration requirements of an investment company under the Investment Company Act are threefold:

Our parent company does not meet the asset test component of the definition of  “investment company” under the Investment Company Act as summarized above;

Our investment subsidiaries qualify under the exemption afforded by Section 3(c)(5)(C) of the Investment Company Act; and

Our intermediate subsidiaries qualify under the exemption afforded by Section 3(c)(6) of the Investment Company Act. See “Investment Company Considerations”.
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We are engaged primarily in the business of investing services for real estate and real estate-related assets and not primarily in the business of investing, reinvesting or trading in securities. We hold ourselves out as a vertically integrated investment firm and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are, or following this offering will be, required to register as an investment company for purposes of the Investment Company Act. Furthermore, following this offering, we will have no material assets other than interests in certain wholly owned subsidiaries (within the meaning of the Investment Company Act), which in turn will have either direct interests in real estate assets or LLC member/LP partnership interests in affiliated funds. We do not believe that, based on current rules and interpretations, the equity interests in our wholly owned subsidiaries or the LLC member interests consolidated or unconsolidated affiliated funds qualify as investment securities under the Investment Company Act.
The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our operations so that we will not be deemed to be an investment company under the Investment Company Act. If anything were to happen that would cause us to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on capital structure, the ability to transact business with affiliates and the ability to compensate senior employees, could make it impractical for us to continue our businesses as currently conducted, impair the agreements and arrangements between and among us, our funds and our senior management, or any combination thereof, and have a material adverse effect on our businesses, financial condition and results of operations. In addition, we may be required to limit the amount of investments that we make as a principal or otherwise conduct our businesses in a manner that does not subject us to the registration and other requirements of the Investment Company Act.
We may not be successful in competing with companies in the real estate services and investment industry, some of which may have substantially greater resources than we do.
Real estate investment and services businesses are highly competitive. Many of our competitors have greater financial resources and a broader market presence than we do. We compete with respect to:

Diversification of our revenue stream across the deal continuum, including brokerage fees on buying and selling assets, construction fees on repositioning assets, and property management fees on certain multi- and single-family assets; and

Competitive fee structures on our fund management services.
Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition.
We depend on the capital markets to grow our balance sheet along with third-party equity and debt financings to acquire properties. We intend to continue to raise a significant amount of third-party equity and debt to acquire real estate assets in the ordinary course of our business. We depend on debt financing from a combination of seller financing, the assumption of existing loans, government agencies and financial institutions. We depend on equity financing from equity partners, which may include public/private companies, pension funds, family offices, financial institutions, endowments and money managers. Our access to capital funding is uncertain. Our inability to raise additional capital on terms reasonably acceptable to us could jeopardize the future growth of our business.
Our ability to raise capital from investors depends on a number of factors, including many that are outside our control. Investors may downsize their investment allocations to alternative managers, including private funds and hedge funds, to rebalance a disproportionate weighting of their overall investment portfolio among asset classes. Poor performance of our funds could also make it more difficult for us to raise new capital. Our investors and potential investors continually assess our funds’ performance independently and relative to market benchmarks and our competitors, and our ability to raise capital for
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existing and future funds depends on our funds’ performance. If economic and market conditions deteriorate, we may be unable to raise sufficient amounts of capital to support the investment activities of future funds. If we were unable to successfully raise capital, our revenue and cash flow would be reduced, and our financial condition would be adversely affected.
We depend on our founders, senior professionals and other key personnel, and our ability to retain them and attract additional qualified personnel is critical to our success and our growth prospects.
We depend on the diligence, skill, judgment, business contacts and personal reputations of our founders, senior professionals and other key personnel. Our future success will depend upon our ability to attract and retain senior professionals and other personnel. Our executives have built highly regarded reputations in the real estate industry. Our executives attract business opportunities and assist both in negotiations with lenders and potential joint venture partners and in the representation of large and institutional clients. If we lost their services, our relationships with lenders, joint ventures and clients would diminish significantly.
In addition, certain of our officers have strong regional reputations, and they aid in attracting and identifying opportunities and negotiating for us and on behalf of our clients. As we continue to grow, our success will largely depend on our ability to attract and retain qualified personnel in all areas of business. We may be unable to continue to hire and retain a sufficient number of qualified personnel to support or keep pace with our planned growth.
We have in the past incurred and may continue in the future to incur significant amounts of debt to finance acquisitions, which could negatively affect our cash flows and subject our properties or other assets to the risk of foreclosure.
We have historically financed new acquisitions with cash derived from secured and unsecured loans and lines of credit. For instance, we typically purchase real property with loans secured by a mortgage on the property acquired. We could become more highly leveraged, resulting in an increase in debt service costs that could adversely affect our results of operations and increase the risk of default on debt. We may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase. Our governing documents do not contain any limitations on the amount of debt we may incur, and we do not have a formal policy limiting the amount of debt we may incur in the future. Subject to the restrictions set forth in our debt agreements, our board of directors may establish and change our leverage policy at any time without shareholder approval.
Some of our debt bears interest at variable rates. As a result, we are subject to fluctuating interest rates that may impact, adversely or otherwise, results of operations and cash flows. We may be subject to risks normally associated with debt financing, including the risks that:

cash flow may be insufficient to make required payments of principal and interest;

existing indebtedness on our properties may not be refinanced and our leverage could increase our vulnerability to general economic downturns and adverse competitive and industry conditions, placing us at a disadvantage compared to those of our competitors that are less leveraged;

our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry;

our failure to comply with the restrictive covenants in the documents governing our indebtedness could result in an event of default that, if not cured or waived, results in foreclosure on substantially all of our assets; and

the terms of available new financing may not be as favorable as the terms of existing indebtedness.
If we are unable to satisfy the obligations owed to any lender with a lien on one of our properties, the lender could foreclose on the real property or other assets securing the loan and we would lose that property or asset. The loss of any property or asset to foreclosure could have a material adverse effect on our business, financial condition and results of operations.
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Rapid growth of our businesses may be difficult to sustain and may place significant demands on our administrative, operational and financial resources.
Our assets under management have grown significantly in the past, and we are pursuing further growth in the near future, both organic and through acquisitions. Our rapid growth has placed, and planned growth, if successful, will continue to place, significant demands on our legal, accounting and operational infrastructure, and has increased expenses. The complexity of these demands, and the expense required to address them, is a function not simply of the amount by which our assets under management has grown, but of the growth in the variety and complexity of, as well as the differences in strategy between, our different funds. In addition, we are required to continuously develop our systems and infrastructure in response to the increasing sophistication of the investment management market and legal, accounting, regulatory and tax developments.
Our future growth will depend in part on our ability to maintain an operating platform and management system sufficient to address our growth and will require us to incur significant additional expenses and to commit additional senior management and operational resources.
We may enter into new lines of business and expand into new investment strategies, geographic markets and businesses, each of which may result in additional risks and uncertainties in our businesses.
We intend, if market conditions warrant, to grow our businesses by increasing assets under management in existing businesses and expanding into new investment strategies, geographic markets and businesses. We may pursue growth through acquisitions of critical business partners or other strategic initiatives, which may include entering into new lines of business.
Attempts to expand our businesses involve a number of special risks, including some or all of the following:

the required investment of capital and other resources;

the diversion of management’s attention from our core businesses;

the assumption of liabilities in any acquired business;

the disruption of our ongoing businesses;

entry into markets or lines of business in which we may have limited or no experience;

increasing demands on our operational and management systems and controls;

compliance with additional regulatory requirements;

potential increase in investor concentration; and

the broadening of our geographic footprint, increasing the risks associated with conducting operations in certain jurisdictions where we currently have no presence.
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. If a new business does not generate sufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected. Our strategic initiatives may include joint ventures, in which case we will be subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to systems, controls and personnel that are not under our control. Because we have not yet identified these potential new investment strategies, geographic markets or lines of business, we cannot identify all of the specific risks we may face and the potential adverse consequences on us and their investment that may result from any attempted expansion.
If we are unable to maintain and protect our intellectual property, or if third parties assert that we infringe their intellectual property rights, our business could suffer.
Our business depends, in part, on our ability to identify and protect proprietary information and other intellectual property such as our client lists and information and business methods. We rely on a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements
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and copyright and trademark laws to protect our intellectual property rights. However, we may not adequately protect these rights, and their disclosure to, or use by, third parties may harm our competitive position. Our inability to detect unauthorized use of, or to take appropriate or timely steps to enforce, our intellectual property rights may harm our business.
Also, third parties may claim that our business operations infringe on their intellectual property rights. These claims may harm our reputation, cost us money to defend, distract the attention of our management and prevent us from offering some services.
Confidential intellectual property is increasingly stored or carried on mobile devices, such as laptop computers, which increases the risk of inadvertent disclosure where the mobile devices are lost or stolen and the information has not been adequately safeguarded or encrypted. This also makes it easier for someone with access to our systems, or someone who gains unauthorized access, to steal information and use it to our disadvantage. Advances in technology, which permit increasingly large amounts of information to be stored on mobile devices or on third-party “cloud” servers, may exacerbate these risks.
The consolidation of investment funds or operating businesses of our portfolio companies could make it more difficult to understand the operating performance of the Company and could create operational risks for the Company.
Under applicable US GAAP standards, we may be required to consolidate certain of our funds, limited liability companies, partnerships or operating businesses if we determine that these entities are VIEs and that the Company is the primary beneficiary of the VIE. The consolidation of such entities could make it difficult for an investor to differentiate the assets, liabilities, and results of operations of the Company apart from the assets, liabilities, and results of operations of the consolidated VIEs. The assets of the consolidated VIEs are not available to meet our liquidity requirements. As of June 30, 2019, December 31, 2018 and 2017, total assets of our consolidated VIEs reflected in our consolidated balance sheets were $163 million, $162 million and $137 million, respectively, and as of June 30, 2019, December 31, 2018 and 2017, total liabilities of our consolidated VIEs reflected in our consolidated balance sheets were $135 million, $132 million and $104 million, respectively.
Insiders will exercise significant control over our company and all corporate matters.
Our directors and executive officers beneficially owned, in the aggregate, approximately 49.93% of our outstanding capital stock as of November 30, 2019. Upon the completion of this offering, and assuming they do not purchase shares in this offering, it is expected that this same group will continue to hold a majority of our outstanding capital stock. Additionally, two members of this group, Mr. John C. Loeffler, II and Ms. Jennifer Schrader each own Class B Common Stock of the Company, which provide “super-voting” rights in the form of ten (10) votes for every share of Class B Common Stock owned by Mr. Loeffler and Ms. Schrader. Together Mr. Loeffler and Ms. Schrader exercise 88.95% voting control over the Company prior to this offering; assuming we redeem those shares held by our management team and a significant beneficial holder as further described in this offering circular, such percentage of voting control would be 80.06%. Please see page 65 — “Security Ownership of Management and Certain Stockholders” for more information. As a result, if they act together, these shareholders will be able to exercise significant influence over all matters submitted to our shareholders for approval, including the election of directors and approval of significant corporate transactions, such as (i) making changes to our articles of incorporation whether to issue additional common stock and preferred stock, (ii) employment decisions, including compensation arrangements; and (iii) whether to enter into material transactions with related parties.. This concentration of ownership may also have the effect of delaying or preventing a third party from acquiring control of our company which could adversely affect the price of our common stock.
Conflicts of interest exist between our company and related parties.
Conflicts of interest exist and may arise in the future as a result of the relationships between our company and our officers, directors and owners, on the one hand, and our funds and its investors, on the other hand. We earn fees from our funds, including our carried interest which value is a direct result from the performance of our funds. There may be instances where the interests of our funds and the investors in such funds diverge from those of our company which could result in conflicts of interest. In resolving these
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conflicts, our board of directors and executive officers have a fiduciary duty to our shareholders. In addition, as we operate as a Fund Manager through a wholly-owned subsidiary, our company has a fiduciary duty to investors in the funds we manage. Unless the resolution of a conflict is specifically provided for in the operating agreements of such funds, our board of directors may consider any factors they determine in good faith to consider when resolving a conflict. An independent third party is not required to evaluate the resolution. As a result of the foregoing, there may be instances where any such conflicts are resolved in a manner which favors the interests of our funds and their investors over our shareholders.
Our Bylaws have an exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain stockholder litigation matters actions against the Company, which may limit an investor’s ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, employees or stockholders.
Section 4 of Article VII of our Bylaws dictates that the Delaware Court of Chancery is the sole and exclusive forum for certain actions including derivative action or proceeding brought on behalf of the Company; an action asserting a breach of fiduciary duty owed by an officer, director, employee or to the shareholders of the Company; any claim arising under Delaware corporate law; and any action asserting a claim governed by the internal affairs doctrine. However, Section 4 of Article VII of our Bylaws does not designate the Delaware Court of Chancery as the exclusive forum for any derivative action or other claim for which the applicable statute creates exclusive jurisdiction in another forum, such as the Exchange Act and the Securities Act, and as a result, does not apply to claims made under the U.S. federal securities laws.
A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law based shareholder class actions, derivative suits and other intra-corporate disputes. With respect to such state law claims, the Company’s management believes limiting state law based claims to Delaware will provide the most appropriate outcomes as the risk of another forum misapplying Delaware law is avoided, Delaware courts have a well-developed body of case law and limiting the forum will preclude costly and duplicative litigation and avoids the risk of inconsistent outcomes. Additionally, Delaware Chancery Courts can typically resolve disputes on an accelerated schedule when compared to other forums.
The choice of forum provisions contained in the Company’s Bylaws may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or any of its directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, the enforceability of similar choice of forum provisions in other issuers’ bylaws and certificates of incorporation has been challenged in legal proceedings, and it is possible that in connection with any applicable action brought against the Company, a court could find the choice of forum provisions contained in the Company’s Bylaws to be inapplicable or unenforceable in such action. As a result, the Company could incur additional costs associated with resolving such actions in other jurisdictions, which could harm the Company’s business, operating results and financial condition.
Our business could be adversely affected by security breaches through cyber-attacks, cyber intrusions or otherwise.
We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology networks and related systems. These risks include operational interruption, private data exposure and damage to our relationship with our customers, among others. A security breach involving our networks and related systems could disrupt our operations in numerous ways that could ultimately have an adverse effect on our financial condition and results of operations.
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Risks Related to the Offering
An investment in our shares of Series B Preferred Stock is a speculative investment and the Series B Preferred Stock has limited rights, preferences and privileges. No assurance can be given that you will realize your investment objectives.
No assurance can be given that investors will realize a return on their investments in us or that they will not lose their entire investment in our shares. In addition, the Series B Preferred Stock has limited rights, preferences and privileges which are substantially unlike traditionally offered shares of preferred stock. Also, holders of shares of our Series A Preferred Stock have superior rights, preferences and privileges than those of investors in our Series B Preferred Stock including, but not limited to superior liquidation preferences. Each prospective investor of our shares should carefully read this Offering Circular and specifically read and review the limited rights, preferences and privileges of the Series B Preferred Stock as more fully described in “Securities Being Offered — Series B Preferred Stock”. ALL SUCH PERSONS OR ENTITIES SHOULD CONSULT WITH THEIR ATTORNEY OR FINANCIAL ADVISOR PRIOR TO MAKING AN INVESTMENT.
Your relative ownership interest may experience additional dilution as a result of a recently filed complaint.
As disclosed in footnote 2 to the Notes to Condensed Consolidated Financial Statements, the Company and 6831614 Manitoba Ltd. (“Manitoba”), a prior consultant to the Company, were negotiating the number of shares of Class A Common Stock to be issued to Manitoba further to a previously executed consulting agreement and related documents. Notwithstanding the foregoing, on January 27, 2020, Manitoba and its President filed a complaint in Maricopa County Superior Court in the State of Arizona against the Company and the Company’s Board of Directors claiming among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and fraud in the inducement. The complaint seeks damages in the amount of  $10,905,575, but in no event less than $8,126,620, treble damages under the argument that the unissued shares are wages under Arizona law, or, alternatively, specific performance that the Company issue Manitoba 2,181,115 shares of Class A Common Stock, but in no event less than 1,625,324 shares. The complaint also seeks fees, costs, interest and such other relief as the court deems just and proper.
While the Company denies these charges and intends to vigorously dispute the claims made therein, the Company cannot predict the outcome of this matter. If all shares demanded further to the aforementioned complaint are ultimately issued to Manitoba, investors’ relative ownership interest will experience additional dilution.
There has been no active public market for our common stock prior to this offering, and an active trading market may not be developed or sustained following this offering, which may adversely impact the market for shares of our Series B Preferred Stock and the Class A Common Stock issuable upon conversion thereof and make it difficult to sell your shares.
Prior to this offering, there was no active market for any of our securities. We do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market, if at all. We intend to list our Class A Common Stock on a national securities exchange or the OTC in the future; however, any such listing may not occur until months or years after the termination of this offering, if at all. As a result, investors should view our Series B Preferred Stock and the Class A Common Stock issuable upon conversion thereof as an illiquid investment. Further, if we do list our shares on a national securities exchange or the OTC, or another trading market develops, no assurance can be given that the market price of shares of our Class A Common Stock will not fluctuate or decline significantly in the future or that stockholders will be able to sell their shares when desired on favorable terms, or at all.
This is a fixed price offering and the Offering Price may not accurately represent the current value of us or our assets at any particular time. Therefore, the Offering Price may not be supported by the value of our assets at the time of your purchase.
This is a fixed price offering, which means that the Offering Price is fixed and will not vary based on the underlying value of our assets at any time. Our Board has determined the Offering Price in its sole discretion. The Offering Price has been based on an internal valuation analysis of our Company as a whole.
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Although we believe the valuation to be fair as of the date it was determined, the fixed offering price established for our shares may not be supported by the current value of our Company or our assets at any particular time.
If investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.
Our shares Series B Preferred Stock and the shares of Class A Common Stock issuable upon conversion thereof have not been registered under the Securities Act of 1933, or the Securities Act, and are being offered in reliance upon the exemption provided by Section 3(b) of the Securities Act and Regulation A promulgated thereunder. We represent that this Offering Circular does not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light of all the circumstances under which they are made, misleading. However, if this representation is inaccurate with respect to a material fact, if this offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or if we fail to register the shares offered hereunder or find an exemption under the securities laws of each state in which we offer the shares, each investor may have the right to rescind his, her or its purchase of the shares sold hereunder and to receive back from our Company his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment may outweigh the benefits. If investors successfully seek rescission, we would face severe financial demands we may not be able to meet and it may adversely affect any non-rescinding investors.
We do not intend to pay dividends in the foreseeable future.
We have the authority to retain all of our earnings for the future operation and expansion of our business. While we are obligated to pay dividends on our outstanding shares of Series A Preferred Stock, we do not intend to make any cash distributions to holders of our Series B Preferred Stock, Class A Common Stock or Class B Common Stock in the foreseeable future. Investors should not expect to receive income on an ongoing basis from an investment in us.
Risks Related to Benefit Plan Investors
Fiduciaries investing the assets of a trust or pension or profit sharing plan must carefully assess an investment in our Company to ensure compliance with ERISA.
In considering an investment in our Company of a portion of the assets of a trust or a pension or profit-sharing plan qualified under Section 401(a) of the Code and exempt from tax under Section 501(a), a fiduciary should consider (i) whether the investment satisfies the diversification requirements of Section 404 of ERISA; (ii) whether the investment is prudent, since the shares sold hereunder are not freely transferable and there may not be a market created in which the shares sold hereunder may be sold or otherwise disposed; and (iii) whether interests in our Company or the underlying assets owned by our Company constitute “Plan Assets” under ERISA. See “ERISA Considerations.”
YOU SHOULD CONSULT WITH YOUR OWN ATTORNEYS, ACCOUNTANTS AND OTHER PROFESSIONAL ADVISORS AS TO THE LEGAL, TAX, ACCOUNTING AND OTHER CONSEQUENCES OF AN INVESTMENT IN SERIES B PREFERRED STOCK.
PURSUANT TO INTERNAL REVENUE SERVICE CIRCULAR NO. 230, BE ADVISED THAT ANY FEDERAL TAX ADVICE IN THIS COMMUNICATION, INCLUDING ANY ATTACHMENTS OR ENCLOSURES, WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY ANY PERSON OR ENTITY TAXPAYER, FOR THE PURPOSE OF AVOIDING ANY INTERNAL REVENUE CODE PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON OR ENTITY. SUCH ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTION(S) OR MATTER(S) ADDRESSED BY THE WRITTEN ADVICE. EACH PERSON OR ENTITY SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This offering circular contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. The forward-looking statements are contained principally in “Offering Circular Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Our Business.” Forward-looking statements include information concerning our possible or assumed future results of operations and expenses, business strategies and plans, competitive position, business environment, and potential growth opportunities. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Those risks include those described in “Risk Factors” and elsewhere in this offering circular. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this offering circular. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this offering circular. You should read this offering circular and the documents that we have filed as exhibits to the Form 1-A of which this offering circular is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
Any forward-looking statement made by us in this offering circular speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward- looking statements, even if new information becomes available in the future. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.
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USE OF PROCEEDS
We are offering a minimum number of 250,000 shares of Series B Preferred Stock and a maximum number of 12,500,000 shares of Series B Preferred Stock, convertible into our Class A Common Stock. The offering price of each share of Series B Preferred Stock is $4.00. The Company will undertake closings at least once a month on the first business day of each month once the minimum offering amount is sold.
The net proceeds of a fully subscribed offering, after total offering expenses, will be approximately $43.8 million. We plan to use these proceeds as follows:

Approximately $17.0 million toward investing in Caliber sponsored funds and real estate strategies as equity aligned with our limited partner investors.

Approximately $7.3 million to repay high interest rate debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. This outstanding debt to be repaid consists of unsecured promissory notes with outstanding principal balances ranging from $1,250 to $900,000, and interest rates ranging from 8.25% to 12.0% and maturity dates ranging from July 2019 to July 2020. The unsecured promissory notes are held by approximately 90 individuals which generally have a 12-month term and are extended on an annual basis; the notes have been extended through December 2020. There are no penalties or fees related to the extension of notes or failure to repay when due. The proceeds of the notes were used for working capital. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Unsecured Corporate Debt.”

Approximately $7.8 million will be used to redeem shares of Class A Common Stock held by our executive management team and a significant beneficial owner on a pro rata basis. No shares shall be redeemed until an aggregate of  $5.0 million of shares offered pursuant to this offering circular have been purchased and after an aggregate of  $25.0 million of shares offered pursuant to this offering circular have been purchased, no additional shares of Class A Common Stock held by such persons shall be redeemed with the proceeds from the sale of shares further to this offering circular. In connection with the aforementioned redemption, an applicable number of shares of Class B Common Stock held by members of our executive management team will convert on a one-for-one basis into shares of Class A Common Stock to be so redeemed. For a description of the total amount each individual member of our executive management team and a significant beneficial owner will receive if the Company’s raises $25 million, see “Interest Of Management and Others in Certain Transactions- Repurchase and Redemption of Shares.”

Approximately $5.5 million will be used for infrastructure enhancements to our operating and controls systems.

The balance will be used for general corporate purposes.
If the offering size were to be $25.0 million, then we estimate that the net proceeds to us would be approximately $20.6 million. In such an event, we would still be able to use the proceeds as outlined above, albeit certain initiatives would be reduced or scaled back. For example, Caliber would adjust its use of proceeds by limiting in size and scope investment in Caliber sponsored funds and real estate strategies as limited partner equity. If the offering size were to be $10.0 million, we estimate that the net proceeds to us would be approximately $6.6 million. In such an event, we would be in a position to and intend to repay approximately $3.0 million of our outstanding debt as set forth above. If the offering size were to be equal to the minimum close amount of  $1,000,000 all proceeds would be used for working capital.
We do not have agreements or commitments for any redevelopment projects at this time. Other than the payment of the Company’s officers’ and directors’ salaries, none of the proceeds of this offering will be used to compensate or otherwise make payments to our subsidiaries’ officers or directors. General corporate purposes may include, but are not limited to, the costs of this offering, including our outside legal and accounting expenses, employee payroll, rent and real estate expenses, utilities, computer hardware and software and promotion and marketing; however, none of the net proceeds of this offering will be used to pay amounts, if any, due and payable further to the Consultant Dispute. Our management has sole discretion regarding the use of proceeds from the sale of Series B Preferred Stock. We reserve the right to change the use of proceeds as business demands dictate.
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DILUTION
If you invest in Series B Preferred Stock, your interest will be diluted to the extent of the difference between the $4.00 offering price per share (the “Offering Price”) of the Series B Preferred Stock, assuming the subsequent conversion of such shares to Common Stock, and the pro forma net tangible book value per share of Common Stock immediately after this offering. Dilution results from the fact that the Offering Price is substantially in excess of the pro forma net tangible book value per share attributable to the existing equity holders.
Our pro forma net tangible book value per share as of June 30, 2019 was approximately ($22,245,883), or approximately ($0.69) per share of Common Stock on a fully converted basis. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Common Stock outstanding on a fully converted basis.
The following table illustrates the substantial and immediate dilution per share of Common Stock to a purchaser in this offering, assuming issuance of all shares of Series B Preferred Stock and the subsequent conversion of all such shares to Common Stock in this offering:
On Basis of Full Conversion of Issued Instruments
$50 Million
Raise
Price per share
$ 4.00
Shares issued
12,500,000
Capital raised
$ 50,000,000
Less: Estimated offering costs
$ 6,200,000
Net Offering Proceeds
$ 43,800,000
Net tangible book value pre-offering(1)
$ (22,245,883 )
Net tangible book value post-offering
$ 21,554,117
Pro Forma Shares outstanding pre-offering assuming full conversion(2)
32,342,890
Pro Forma Post-offering shares outstanding assuming full conversion(2)(3)(4)
44,842,890
Net tangible book value per share prior to offering(1)(2)
$ (0.69 )
Increase/(Decrease) per share attributable to new investors(2)(3)(4)
$ 1.17
Net tangible book value per share after offering(2)(3)(4)
$ 0.48
Dilution per share to new investors ($)(2)(3)(4)
$ 3.52
Dilution per share to new investors (%)(2)(3)(4)
87.98 %
(1)
Net tangible book value is based on the net tangible equity attributable to equity holders of the Company excluding non-controlling interest as of June 30, 2019.
(2)
Assumes conversion of all issued shares of Series A Preferred Stock to Class A Common Stock, vesting and exercise of all issued and outstanding Class A Common Stock, and exercise of all warrants or stock options issued by Caliber. Excludes shares of Class A Common Stock which may be issued further to the Consultant Dispute.
(3)
Does not give effect to the redemption of shares of Class A Common Stock held by our executive management team and a significant beneficial owner with a portion of the net proceeds of this offering. See “Use of Proceeds”. After giving effect to said redemption, assuming the maximum amount of Series B Preferred Stock is sold, the increase per share attributable to new investors would be $1.07, net tangible book value per share after offering would be $0.38, dilution per share to new investors would be $3.62 and dilution per share to new investors (%) would be 90.51%.
(4)
Assumes the maximum amount of Series A Preferred Stock is sold and assumes conversion of all such shares to Class A Common Stock.
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The following table presents the Company’s capitalization as of June 30, 2019 and compares the price that new investors are paying for their shares with the effective cash price paid by existing stockholders, assuming full conversion of preferred stock and full vesting and exercise of outstanding convertible notes, warrants and stock options. Excludes shares of Class A Common Stock which may be issued further to the Consultant Dispute.
Dates
Issued
Issued
Shares
Potential
Shares
Total Issued and
Potential Shares
Effective
Cash Price
per Share at
Issuance or
Potential Conversion
Common Stock(1)
Various
28,078,904 28,078,904 $ 0.449 (1)
Series A Preferred Stock
Various
1,657,396 414,349 2,071,745 $ 2.250
Outstanding Stock Options
Various
2,120,920 (2) 2,120,920 $ 1.990 (3)
Warrants
Various
137,821 (2) 137,821 $ 1.890 (3)
Total Common Share Equivalents
29,736,300 2,673,090 32,409,390
Investors in this offering, assuming $50 million raised
12,500,000 12,500,000 $ 4.000
Total after inclusion of this offering
42,236,300 2,673,090 44,909,390
(1)
Common shares issued for various prices ranging from $0.001 to $2.00 per share. Weighted average pricing presented. Does not give effect to the redemption of shares of Class A Common Stock held by our executive management team and a significant beneficial owner on a pro rata basis with a portion of the net proceeds of this offering. In connection therewith, an applicable number of shares of Class B Common Stock held by members of our executive management team will convert on a one-for-one basis into shares of Class A Common Stock to be so redeemed. See “Use of Proceeds”.
(2)
Assumes conversion at exercise price of all outstanding warrants and options.
(3)
Stock option and warrant pricing is the weighted average exercise price of outstanding options and warrants, respectively.
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BUSINESS
We are focused on creating wealth for our clients by providing access to high quality real estate investments. Caliber believes that capital organized privately into structured funds offers investors an optimal balance of risk-adjusted return and investment performance. By allowing investors who may not otherwise be able to purchase a large asset, to participate with a minimum investment as low as $35,000, Caliber provides typical real estate investors access to sophisticated strategies and assets that they may not otherwise have.
While Caliber’s business model is in part analogous to that of a financial asset manager, our model is built on a full-service approach. We have complemented traditional asset management functions with construction, property management, and deal expertise that we believe creates a competitive advantage against other traditional asset manager models. Compared to non-traded REITs that often come with high cost structures for investors, we offer reduced product origination costs and fund-level fees. By eliminating many of the fees earned at the fund level, and sizing the remaining fees to cover Company overhead, Caliber aligns its profitability with that of its investors. We believe our approach allows us to drive down the cost burden that is borne by funds under a traditional asset management model, increase returns to investors of those funds, and generate long-term sustainable cash flows. Caliber is organized as follows:
[MISSING IMAGE: tv529878-fc_businessbw.jpg]
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). Each segment works closely together and plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments, generating proprietary transaction flow and creating value through efficient implementation of asset management strategies.
Fund Management
Fund Management represents the Company’s fund management activities along with back office and corporate support functions including accounting and human resources. It also includes the activities associated with Caliber Securities, LLC, which generates fees from capital raising. We act as an asset manager of our private equity real estate funds, or Funds, which have diversified investment objectives. Generally, Caliber Services, LLC, and its subsidiaries, or Caliber Services, act as manager of the Funds. As of December 31, 2018, our assets under management, or AUM of real property at cost, consisted of $249 million and the value of our real property portfolio, or Fair Value AUM, was approximately
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$375 million. Since inception through December 31, 2018, we have raised over $283 million from accredited investors. For the years ended December 31, 2018 and 2017, we generated approximately $8.4 million and $3.9 million of revenue from our fund management activities, respectively, of which approximately $3.7 million and $1.8 million, respectively, are eliminated in consolidation. On an unconsolidated basis, Caliber’s fund management fees represented approximately 10% and 13% of corporate entity’s total unconsolidated revenues for the years ended December 31, 2018 and 2017, respectively.
We earn fund management fees for services rendered to each of the Funds by Caliber Services. Below is an overview of the fees we earn:

Set-Up Fee.   We charge an initial one-time fee related to the initial formation, administration and set-up of the applicable Fund.

Financing Fee.   We earn a fee upon the closing of a loan with a third party lender. This fee does not exceed 1% of the total loan and will not exceed 3% of the total loan after considering all other origination fees charged by lenders and brokers involved in the transaction.

Management Fee.   We receive an annual management fee in an amount equal to 1.50% of the non-affiliate capital contributions to each of the Funds.

Carried Interest.   We receive 20% – 35% of all cash distributions from (i) the operating cash flow of each Fund, after payment to the related Fund investors of any accumulated and unpaid priority preferred returns and repayment of preferred capital contributions; and (ii) the cash flow resulting from the sale or refinance of any real estate assets held by each Fund, after payment to the related Fund investors of any accumulated and unpaid priority preferred returns and repayment of preferred capital contributions. Our Funds’ preferred returns range from 6% to 12%.
The amounts that Caliber is entitled to receive from each Fund are governed by the terms of the Fund operating agreements. Generally, once investors receive distributions equal to their preferred return, Caliber receives 35% of operating cash flows from each Fund. With respect to the Caliber Residential Advantage Fund, L.P. (“CRAF”), investors are entitled to 80% of cash flows and Caliber is entitled to 20% of cash flows.
Through our wholly owned Arizona registered issuer-dealer, Caliber Securities, LLC, we earn fees from raising capital into our Funds. Our contracts with our funds are typically fixed fee arrangements which approximate no more than 3.50% on the dollars raised for any one project. For the years ended December 31, 2018 and 2017, we generated approximately $1.4 million and $0.5 million, respectively of which approximately $0.3 million and $0.1 million, respectively are eliminated in consolidation. On an unconsolidated basis, Caliber Securities represented approximately 2.0% of the Company’s total unconsolidated earnings for the years ended December 31, 2018 and 2017, respectively.
Construction and Development
Our Construction and Development segment represents the Company’s activities associated with asset remodeling and refurbishment and ground up construction. The majority of the revenues generated by this segment are earned from work completed on assets held in our funds. Caliber Development, LLC, or Caliber Development, a wholly owned subsidiary of Caliber Services, LLC, acts as the general contractor on our projects. Our strategy for this segment is to complete high-quality work while maintaining competitive margins so that the benefits are passed along to the investors of the related funds. For the years ended December 31, 2018 and 2017, we generated approximately $9 million and $21 million, respectively of which approximately $5 million and $16 million, respectively are eliminated in consolidation. On an unconsolidated basis, Caliber Development represented approximately 11% and 76% of Corporate entity’s total unconsolidated earnings for the years ended December 31, 2018 and 2017, respectively.
Property Management
Keeping our single family and multi-family properties rented is the primary focus of our Property Management division. Through our wholly-owned subsidiary Caliber Realty Group, LLC, or Caliber Realty, we provide property management services to both our funds and third-party property owners. In some instances, we may engage an external service provider to assist in increasing occupancy for specific
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and niche assets. Revenues in this segment are driven by property management fees, which are generally based upon percentages of the rental revenue or gross rent generated by such properties. Property management revenue also includes fees charged to property management customers for leasing commissions, which are generally based on the amount of the new lease executed with a minimum flat fee. For the years ended December 31, 2018 and 2017, we generated approximately $0.5 million and $0.7 million, respectively, of which approximately $0.2 million are eliminated in consolidation. On an unconsolidated basis, Property Management represented approximately 1% and 2%, of the Company’s total unconsolidated earnings for the years ended December 31, 2018 and 2017.
Real Estate Brokerage
Whenever Caliber is involved in a transaction involving real estate acquisition or sale, we collect fees for brokering the arrangement, through Caliber Realty. For the years ended December 31, 2018 and 2017, we generated approximately $1.9 million of brokerage fees, which approximately $1.6 million are eliminated in consolidation. On an unconsolidated basis, real estate brokerage represented approximately 2% and 7% of the Company’s total unconsolidated earnings for the years ended December 31, 2018 and 2017, respectively. For the six months ended June 30, 2019, the Company reclassified certain business activities which were previously reported under the Residential segment into the Real Estate Brokerage segment. These activities included the Company’s wholly owned Caliber Auction Homes single family portfolio and our wholly owned investment in Saddleback Ranch.
Our Fund Portfolio
The following discussion relates to the activities of our various consolidated and unconsolidated Funds which are generally structured as separate limited liability companies or partnerships. Outside of its interests as the manager or general partner of these funds, Caliber benefits in these entities are limited to Calibers’ direct membership or partnership interests, if any. Investors in Caliber should understand that the majority of the profit and/or loss of any of these Funds or rights and obligations to its related assets and liabilities, respectively, is limited or in some cases unavailable.
The following chart presents the name (acronym), total contributed net capital, total investments at cost, and total investments at fair value of the funds in our hospitality, residential, and commercial segment as of December 31, 2018.
As of December 31, 2018
Fund Name
Fund Inception
Date
Contributed
Capital, Net(1)
Investments, at
Cost(2)
Investments, at
Fair Value(3)
Hospitality:
CHPH, LLC (“CHPH”)
October 2012 $ 10,339,740 $ 23,601,256 $ 32,800,000
Indian Bend Hotel Group, LLC (“IBHG”)
September 2014 4,225,842 11,292,069 15,000,000
44th & McDowell Hotel Group, LLC (“44th”)
May 2015 8,249,646 22,539,770 30,700,000
Tucson East, LLC (“Tucson East”)
May 2016 9,696,091 20,709,181 25,300,000
47th Street Phoenix Fund, LLC (“47th Street”)
October 2016 12,994,123 36,368,833 47,800,000
CH Ocotillo
June 2018 5,367,820 12,124,992 13,800,000
Elliot 10
September 2017 3,410,000 16,763,431 17,300,000
SF Alaska, LP (“Salmon Falls”)
August 2015 5,666,974 10,239,693 13,500,000
Edgewater Hotel Group, LLC (“Edgewater”)
October 2015 1,620,279 2,874,180 4,300,000
$  61,570,515 $ 156,513,405 $ 200,500,000
Residential:
GC Square, LLC (“GC Square”)
September 2015 $ 6,280,570 $ 12,943,775 $ 25,000,000
Palms Weekly Portfolio, LP (“Palms”)
July 2016 6,650,000 15,050,353 24,500,000
South Mountain Square, LLC (“SMS”)
June 2012 4,725,059 10,800,000
Circle Lofts, LLC (“Eclipse”)
November 2016 2,491,043 8,447,794 11,500,000
The Roosevelt I, LLC (“Roosevelt”)
January 2016 2,017,379 5,110,604 7,000,000
CDIF Sunrise, LLC (“Treehouse”)
April 2014 7,727,619 12,711,942 18,200,000
Caliber Residential Advantage Fund, LP (“CRAF”)
August 2016 6,247,511 3,778,884 4,700,000
$ 31,414,122 $ 62,768,411 $ 101,700,000
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As of December 31, 2018
Fund Name
Fund Inception
Date
Contributed
Capital, Net(1)
Investments, at
Cost(2)
Investments, at
Fair Value(3)
Commercial:
SIP Coffee & Beer Kitchen, LLC (“Sip”)
February 2017 $ 394,286 $ 394,286 $ 600,000
AZ24HR Storage Kingman, LLC (“Kingman”)
December 2016 58,025 536,823 900,000
1040 N VIP Blvd, LLC (“VIP”)
December 2015 161,025 1,957,537 1,500,000
1601 Athol Ave, LLC (“Athol”)
December 2015 74,866 1,299,952 1,800,000
Logan Airport Storage, LLC (“Logan”)
February 2016 205,518 1,832,997 1,800,000
CDIF Baywood, LLC (“Baywood”)
December 2013 85,220 77,689 100,000
CH Mesa Holdings, LLC (“Mesa”)
July 2017 3,813,804 8,199,229 10,400,000
J-25 Johnstown Holdings, LLC (“J-25”)
May 2017 2,684,355 5,200,982 37,600,000
Fiesta Tech Owners, LLC (“Fiesta Tech”)
March 2016 1,804,998 4,860,929 8,000,000
9,282,097 24,360,424 62,700,000
Total Funds
$ 102,266,734 $ 243,642,240 $ 364,900,000
Non-Fund Assets
Residential(4):
Caliber Auction Homes, LLC $ $ 4,111,640 $ 6,900,000
Saddleback Ranch, LLC (“Saddleback”) 1,122,437 3,500,000
Total Assets Under Management $ 102,266,734 $ 248,876,317 $ 375,300,000
(1)
Capital contributions since the inception of the Fund, net of any redemptions (i.e. returns of original capital invested).
(2)
Carrying value of real estate assets owned by the Fund.
(3)
Estimated fair value of assets owned by the Fund; estimated based on recent appraisals, discounted cash flow analysis, and other valuation techniques as deemed appropriate.
(4)
For the six months ended June 30, 2019, the Company reclassified certain business activities which were previously reported under the Residential segment into the Real Estate Brokerage segment. These activities included the Company’s wholly owned Caliber Auction Homes single family portfolio and our wholly owned investment in Saddleback Ranch.
Our diversified segment is presented below. The Funds included in this segment are invested in the assets included in the table above, and therefore are presented separately to avoid double counting.
As of December 31, 2018
Fund Name
Fund Inception
Date
Contributed
Capital, Net(1)
Investments, at
Cost(2)
Investments, at
Fair Value(3)
CDIF, LLC (“CDIF”)
May 2013 $  35,054,997 $  34,533,954 $  43,900,000
Caliber Diversified Opportunity Fund II, LP (“CDOF II”)
June 2017 14,279,089 11,992,029 27,621,562
Caliber Fixed Income Fund, LLC (“CFIF”)(4)
March 2014
Caliber Fixed Income Fund II, LLC (“CFIF II”)
April 2015 6,664,747 6,646,542 6,646,542
Caliber Fixed Income Fund III, LLC (“CFIF III”)
April 2018 10,247,515 9,386,367 9,386,367
Caliber Tax Advantaged Opportunity Zone Fund, LP (“CTAF”)
August 2018 13,000,000 10,222,913 10,222,913
$ 79,246,348 $ 72,781,805 $ 97,777,384
(4)
CFIF was the Company’s first private lending Fund, which closed and was liquidated in May 2016. Total capital contributed to the Fund was $10.7 million, and the fund produced an annual return of 10% on the contributed capital through its existence.
We focus our offerings on middle market accredited investors. To meet our investors’ changing needs and demand for quality real asset opportunities, we manage investments in an increasingly wide range of Funds across a line of complementary strategies. We have demonstrated an ability to consistently generate attractive and differentiated investment returns across these investment strategies and through various market environments. We believe the scope of our product offering, our expertise in various investment
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strategies and our proficiency in attracting and satisfying our investor base has enabled, and will continue to enable, us to increase our assets under management across each of our investment groups in a balanced manner. Our Open and Evergreen Funds currently consist of the following:

Caliber Tax Advantaged Opportunity Zone Fund, LP.   Caliber Tax Advantaged Opportunity Zone Fund, LP, a Delaware limited partnership, or CTAF, was formed in August 2018. CTAF’s investment objective is to raise capital from investors who are looking to obtain federal income tax benefits from Sections 1400Z-1 and 1400Z-2 (the “Opportunity Zone Provisions”) of the Internal Revenue Code; and deploy that capital in investments within certain designated Opportunity Zones that have been identified by Treasury of the United States.

CH Ocotillo Inv Fund, LLC.   The CH Ocotillo Inv Fund, LLC (“CH Ocotillo”), a Delaware limited liability company, was formed in June 2018. CH Ocotillo’s investment objective is to acquire, own, and operate a 106-guest room, full service Holiday Inn branded hotel in Chandler, Arizona.

Caliber Fixed Income Fund III, LP.   Caliber Fixed Income Fund III, LLC (“CFIF III”), a Delaware limited liability company, was formed in April 2018. CFIF III’s investment objective is to generate annual returns to investors of 8.25% – 9.25% and targets first and second position loans on real estate assets.

Elliot 10 Fund, LLC.   The Elliot 10 Fund, LLC (“Elliot 10”), a Delaware limited liability company, was formed in September 2017. Elliott 10’s investment objective is to acquire, own, and operate a 169-guest room, full service Four Points by Sheraton branded hotel located in Phoenix, Arizona.

Caliber Diversified Opportunity Fund II, LP.   Caliber Diversified Opportunity Fund II, LP (“CDOF II”), a Delaware limited partnership, was formed in June 2017. CDOF II’s investment objective is to acquire or originate a portfolio of commercial, multi-family, hospitality and self-storage real estate investments in primary, secondary and select tertiary markets.

47th Street Phoenix Fund, LLC.   The 47th Street Phoenix Fund, LLC (“47th Street”), a Delaware limited liability company, was formed in October 2016. 47th Street’s investment objective is to acquire, own, and operate a 259-guest room, full service Hilton branded hotel in Phoenix, Arizona.

Caliber Residential Advantage Fund, LP.   Caliber Residential Advantage Fund, LP (“CRAF”), a Delaware limited partnership, was formed in August 2016. CRAF’s investment objective is to acquire a portfolio of residential real estate in primary, secondary and select tertiary markets.
Hospitality
Our Hospitality segment represents one of Caliber’s largest fund segments accounting for 62.9% and 53.7% of our total assets under management at December 31, 2018 and 2017, respectively. Through the Funds we manage, we acquire hotels in certain opportunistic situations in which we are able to purchase at a discount to replacement cost or can implement our value-add investment approach. As of December 31, 2018, we have a total of 9 hotels under management, located in Tucson, Chandler, Phoenix, and Scottsdale, Arizona and Ketchikan, Alaska. Our portfolio of hotels represents over 1,400 rooms under management across multiple brands including Crowne Plaza, Sheraton, Hampton Inn, Holiday Inn, and Hilton.
We earn property operating revenue from our hospitality operations consisting of revenues generated primarily by the hotel properties we own. This includes revenue from room rentals, food and beverage sales, banquet and group sales and other hotel operating activities. For the years ended December 31, 2018 and 2017, we generated hospitality revenues of approximately $51 million and $46 million, respectively.
Residential
Our Residential segment includes single-family homes owned by our wholly-owned subsidiary, Caliber Auction Homes, LLC, and single and multi-family properties held by our funds. We pursue single-family acquisition opportunities as part of our Caliber Residential Advantage Fund investment strategy where we acquire undervalued homes and transform them through major or minor remodeling. Currently, all our
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single-family properties are located in Arizona. As of December 31, 2018, we have a total of 34 single-family properties under management.
For the six months ended June 30, 2019, the Company reclassified certain business activities which were previously reported under the Residential segment into the Real Estate Brokerage segment. These activities included the Company’s wholly owned Caliber Auction Homes single family portfolio and our wholly owned investment in Saddleback Ranch.
We pursue multi-family opportunities where we believe we can unlock value through a myriad of strategies, including asset rehabilitation, repositioning and creative recapitalization. We focus primarily on apartments in supply-constrained, in-filled markets. As of December 31, 2018, we have purchased over 831 units across 6 separate apartment complexes.
Our residential segment represents approximately 27.3% and 32.4% of total assets under management at December 31, 2018 and 2017, respectively.
Commercial
Our Commercial segment includes properties representing both traditional office space and self-storage facilities. As of December 31, 2018, we are involved in 9 different commercial properties, located in Gilbert, Mesa, Kingman, and Casa Grande, Arizona, Henderson, Nevada, Johnstown, Colorado, and Logan, Utah.
Our Commercial segment represents approximately 9.8% and 13.8% of total assets under management at December 31, 2018 and 2017, respectively.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —  Segment Analysis” for a discussion of activities by segment for the six months ended June 30, 2019.
Competition
The investment management industry is intensely competitive, and we expect it to remain so. We compete primarily on a regional, industry and asset basis.
We face competition both in the pursuit of fund investors and investment opportunities. Generally, our competition varies across business lines, geographies and financial markets. We compete for outside investors based on a variety of factors, including investment performance, investor perception of investment managers’ drive, focus and alignment of interest, quality of service provided to and duration of relationship with investors, business reputation, and the level of fees and expenses charged for services. We compete for investment opportunities based on a variety of factors, including breadth of market coverage and relationships, access to capital, transaction execution skills, the range of products and services offered, innovation, and price.
We compete with real estate funds, specialized funds, hedge fund sponsors, financial institutions, private equity funds, corporate buyers and other parties. Many of these competitors in some of our businesses are substantially larger and have considerably greater financial, technical and marketing resources than are available to us. Many of these competitors have similar investment objectives to us, which may create additional competition for investment opportunities. Some of these competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us with respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively than us for investments that we want to make. Corporate buyers may be able to achieve synergistic cost savings with regard to an investment that may provide them with a competitive advantage in bidding for an investment. Lastly, institutional and individual investors are allocating increasing amounts of capital to alternative investment strategies. Several large institutional investors have announced a desire to consolidate their investments in a more limited number of managers. We expect that this will cause competition in our industry to intensify and could lead to a reduction in the size and duration of pricing inefficiencies that our funds seek to exploit.
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Regulatory and Compliance Matters
Our businesses, as well as the financial services industry generally, are subject to extensive regulation, including periodic examinations, by governmental agencies and self-regulatory organizations or exchanges in the jurisdictions in which we operate relating to, among other things, anti-money laundering laws, and privacy laws with respect to client information, and some of our funds invest in businesses that operate in highly regulated industries. Each of the regulatory bodies with jurisdiction over us have regulatory powers dealing with many aspects of financial services, including the authority to grant, and in specific circumstances to cancel, permissions to carry on particular activities. Any failure to comply with these rules and regulations could expose us to liability and/or reputational damage. In addition, additional legislation, increasing regulatory oversight of fundraising activities, changes in rules promulgated by self-regulatory organizations or exchanges or changes in the interpretation or enforcement of existing laws and rules may directly affect our mode of operation and profitability.
We intend to continue to conduct our operations so that neither we nor any subsidiaries we own nor ones we may establish will be required to register as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”). The loss of our exclusion from regulation pursuant to the Investment Company Act could require us to restructure our operations, sell certain of our assets, or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations. See “Risk Factors — Risks Related to Our Company — If we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as conducted and could have a material adverse effect on our business” and “Investment Company Act Considerations”.
Litigation
On January 27, 2020, 6831614 Manitoba Ltd. (“Manitoba”), a prior consultant to the Company, and its President filed a complaint in Maricopa County Superior Court in the State of Arizona against the Company and the Company’s Board of Directors claiming among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and fraud in the inducement. The complaint seeks damages in the amount of  $10,905,575, but in no event less than $8,126,620, treble damages under the argument that the unissued shares are wages under Arizona law, or, alternatively, specific performance that the Company issue Manitoba 2,181,115 shares of Class A Common Stock, but in no event less than 1,625,324 shares. The complaint also seeks fees, costs, interest and such other relief as the court deems just and proper.
While the Company denies these charges and intends to vigorously dispute the claims made therein, the Company cannot predict the outcome of this matter. If all shares demanded further to the aforementioned complaint are ultimately issued to Manitoba, investors’ relative ownership interest will experience additional dilution.
CORPORATE OFFICE
Our corporate office is located at 8901 E. Mountain View Rd., Suite 150, Scottsdale, Arizona, 85258, which we lease. We believe that we our current space is suitable and adequate for conducting our business, however, we may need to relocate offices in the future in the event that we hire additional employees.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Offering Circular. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Offering Circular for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Our business is focused on creating wealth for our clients by providing access to high quality real estate investments. While Caliber’s business model may seem analogous to that of a financial asset manager, we have complemented that responsibility with construction, property management, and deal expertise that creates a competitive advantage against other traditional asset managers models. We believe our approach allows us to drive down the cost burden that is borne by funds under a traditional asset management model, increase returns to investors of those funds, and generate long-term sustainable cash flows to Caliber that are largely resistant to economic cyclicality.
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund Management, Construction and Development, Property Management, and Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified).
Real Estate Services
Fund Management — Our fund management segment represents our sponsorship and project management activities with respect to our 15 funds, each of which has differing investment objectives, sizes, and growth opportunities. This segment also includes our Caliber Securities, LLC, the issuer dealer who raises capital exclusively for our funds. Caliber Securities, LLC generates fees of up to 3.5% on the capital raised.
Construction and Development — Our construction and development segment operates as a general contractor on all of Caliber’s construction projects including ground up builds, remodels and repairs and maintenance. As of June 30, 2019, December 31, 2018 and 2017, approximately 94%, 97% and 98%, respectively, of the segment’s revenues were derived from projects performed on the assets held by our funds and had approximately $16 million, $12 million and $36 million, respectively, of projects in various stages of completion.
Property Management — Our property management segment manages the single family and multi-family assets of our fund portfolio and other similar assets held and owned by third parties. As of June 30, 2019, December 31, 2018 and 2017, approximately 88%, 96% and 74%, respectively, of the segment’s revenues were derived from assets held by our funds.
Real Estate Brokerage — Our real estate brokerage segment is involved in executing the buying and selling of all our fund assets and completing the buy and sell transactions of other properties for third parties. As of June 30, 2019, December 31, 2018 and 2017, our brokerage segment completed approximately $15 million, $79 million and $62 million, respectively, in transactions generating approximately $0.6 million, $1.9 million and $1.9 million, respectively, of brokerage fees.
For the six months ended June 30, 2019, the Company reclassified certain business activities which were previously reported under the Residential segment into the Real Estate Brokerage segment. These activities included the Company’s wholly owned Caliber Auction Homes single family portfolio and our wholly owned investment in Saddleback Ranch.
For the six month period ended June 30, 2019, our brokerage segment completed approximately $1.4 million of real estate sales.
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Real Estate Operations
Hospitality — Our hospitality segment includes 9 hotels with operations in Phoenix, Scottsdale, Chandler and Tucson, Arizona and Ketchikan, Alaska. As of June 30, 2019, December 31, 2018 and 2017, our hospitality segment had approximately $203 million, $201 million and $147 million, respectively, of assets under management.
Residential — Our residential segment includes our 7 multi-family assets and our single-family asset portfolio held in CRAF and Caliber Auction Homes, LLC. As of June 30, 2019, December 31, 2018 and 2017, our residential segment had approximately $98 million, $112 million and $90 million of assets under management.
For the six months ended June 30, 2019, the Company reclassified certain business activities which were previously reported under the Residential segment into the Real Estate Brokerage segment. These activities included the Company’s wholly owned Caliber Auction Homes single family portfolio and our wholly owned investment in Saddleback Ranch.
Commercial — Our commercial segment includes our 2 office buildings and 3 self-storage facilities. As of June 30, 2019, December 31, 2018 and 2017, our commercial segment had approximately $65 million, $63 million and $39 million, respectively, of assets under management.
Diversified — Our diversified segment includes our diversified fund portfolio (CDIF and CDOF II), and our lending funds (CFIF II and CFIF III). As of June 30, 2019, December 31, 2018 and 2017, our diversified segment had approximately $102 million, $76 million and $92 million, respectively of assets under management.
Each segment works closely together and plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments, generating proprietary transaction flow and creating value through efficient implementation of fund management strategies. We earn management fees pursuant to contractual arrangements with Caliber funds and allocate certain direct and indirect costs related to overhead and marketing. We also earn a performance-based fee from our funds which is typically in the form of a special residual allocation of income known as carried interest, but only to the extent that certain minimum investment results are achieved by the related fund. Under US GAAP, we are required to consolidate some of the investment funds that we manage. However, for segment reporting purposes, we present revenues and expenses on a basis that deconsolidates these funds and includes our other funds that are not consolidated.
Trends Affecting Our Business
In December 2017, the President signed the Tax Cuts and Jobs Act, or TCJA, providing a significant overhaul to the U.S. federal tax code. We expect the TCJA to be a net positive impact to the U.S. economy. In particular, Congress established the Qualified Opportunity Zone program (the “QOZ Program”), which provides preferential tax treatment to tax payers who invest eligible capital gains into qualified opportunity funds (“QOFs”). The Caliber Tax Advantaged Opportunity Zone Fund, LP is a QOF that will invest its capital into qualified opportunity zones (“QOZs”) and take advantage of this program. IRS and Treasury regulations are forthcoming and we will continue to monitor and evaluate the interpretations as they are issued.
Our success at raising new capital into our funds is impacted by the extent to which new investors see alternative assets as a viable option for capital appreciation and/or income generation. We have experienced increased volatility in the stock market throughout 2018 with the Cboe Volatility index more than doubling to 36.07 in December, before ending the year at 25.42 or 130%. As the markets continue to demonstrate unpredictable trends, we believe the increasing appetite for stable real assets will be a continuing trend. Since our inception we have continued to successfully raise capital into our funds with our total capital raised through June 30, 2019 exceeding $325 million. We expect that our fundraising capabilities will continue through 2019 and into 2020. While we have had historical successes, there can be no assurance that fundraises for our new and existing funds will experience similar success. See “Risk Factors — Risks
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Related to Our Company”. Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition.
We remain confident about our ability to find, identify, and source new investment opportunities that meet the requirements and return profile of our investment funds despite headwinds associated with increased asset valuations, competition and increased overall cost of credit. We continue to identify strategic acquisitions on off-market terms and anticipate that this trend will continue as we begin to branch outside of Arizona. We are at a point in our deal cycle where some of our funds have begun to exit significant parts of their portfolios while other are approaching a potential harvesting phase. We have complemented these cycles with other newer funds that will maintain management fees while providing continued sources of activity for our construction and development segment. We expect this trend to continue through 2019, and therefore expect management fees and construction fees to increase year over year.
Acquiring new assets includes being able to negotiate favorable loans on both a short and long-term basis. We forecast and project our returns using assumptions about, among other things, the types of loans that we can expect the market to extend for a particular type of asset. This becomes more complex when the asset also requires construction financing. We may also need to refinance existing loans that are due to mature. Factors that affect these arrangements include the interest rate and economic environment, the estimated fair value of the real property, and the profitability of the asset’s historical operations.
The demand from investors is dependent upon the type of asset, the type of return it will generate (current cash flow, long term capital gains, or both) and the actual return earned by our Fund investors relative to other comparable or substitute products. General economic factors and conditions, including the general interest rate environment and unemployment rates, may affect an investor’s ability and desire to invest in real estate. For example, a significant interest rate increase could cause a projected rate of return to be insufficient after considering other risk exposures. Additionally, if weakness in the economy emerges and actual or expected default rates increase, investors in our Funds may delay or reduce their investments. However, we believe our approach to investing and the capabilities that Caliber manages throughout the deal cycle will continue to offer an attractive value proposition to investors.
Stock-Based Compensation
Stock-based compensation includes the expense related to restricted stock grants made to our employees. All stock-based awards made to employees are recognized in the consolidated financial statements based on their estimated fair value on the date of grant. As of December 31, 2018, the fair value of the shares granted had been established by our board of directors primarily based upon a Section 409A valuation provided by an independent third-party valuation firm.
Stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of 4 years.
Share awards issued to non-employees are recorded at their fair value on the awards’ grant date, which is estimated using the same methodology described above.
Key Financial Measures
Our key financial measures are discussed in the following pages. Additional information regarding these key financial measures and our other significant accounting policies can be found in Note 2 to the consolidated financial statements included herein.
Total Revenue
We generate the majority of our revenue from (i) construction and development income, (ii) fund management fees, (iii) brokerage commissions, (iv) hospitality income, (v) real estate sales, and (vi) rental income.
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Construction and Development Income.   We earn construction and development income for providing construction management and general contractor services to third-party clients and our Funds. Construction and development income is recognized at the time services are performed. We measure the progress toward completion of the project to determine the amount of revenue and profit to be recognized in each reporting period. Profit is recorded based upon the product of estimated contract profit-at-completion times the current percentage-complete for the contract. Our progress estimates are based upon estimates of the total cost to complete the project, which considers, among other things, the current project schedule and anticipated completion date, as well as estimates of the extent of progress toward completion. While progress is generally based upon costs incurred in relation to total estimated costs at completion, we also use alternative methods including physical progress, labor hours incurred to total estimated labor hours at completion or others depending on the type of project.
Fund Management Fees.    Fund management fees include management fees and performance fees. We earn management fees for sponsorship and project management activities with respect to Caliber funds in which we hold a general partner interest. Fund management fees exclude the reimbursement of any company expenses paid by the Company on behalf of the Funds pursuant to the respective fund operating agreements, including professional fees, expenses associated with the acquisition, and other fund administrative expenses. Performance fees are comprised of either annual incentive fees which are earned when the related fund has achieved a minimum stated annual rate of return or performance-based capital allocation from fund limited partners/members to us, commonly known as carried interest. Caliber recognizes carried interest revenue when its earned and deemed collectible.
Brokerage Commissions.   We earn real estate brokerage commissions by acting as a broker for real estate owners seeking to sell or investors seeking to buy properties. We also earn these fees on transactions that are consummated for each of our funds. Revenues from real estate brokerage commissions are typically recognized at the close of escrow. Real estate brokerage commissions are typically based upon the value of the property.
Hospitality Income.   We recognize hospitality income based on activities generated by our consolidated hotel assets which include room rentals, food and beverage sales, and other sales.
Real Estate Sales.   Real estate sales are comprised of sales proceeds from the sale of single-family homes and recognized generally when the sale of an asset has been completed, cash has been received, and the risks and rewards of ownership have transferred to the buyer.
Rental Income.   Rental income includes periodic rent collected from each of our single-family, multi-family, and commercial assets. Revenue is recognized when earned and collectability is reasonably assured.
Total Expenses
Total expenses include cost of sales associated with each of hospitality, construction, real estate, and brokerage, operating costs, general and administrative, marketing and advertising, franchise fees, management fees, and depreciation.
Cost of Sales — Hospitality.   These costs of sales include salaries and materials incurred to generate revenue for room rentals and food and beverage sales at our hotels.
Cost of Sales — Construction/Development.   These represent the materials, labor and overhead applied to each of the construction projects the Company was involved in.
Cost of Sales — Real Estate.   These costs represent the historical basis of the properties that were sold in the period.
Cost of Sales — Brokerage.   These costs represent the commissions paid by the Company to its brokers who were involved in closing the associated real estate transaction.
Operating Costs.   Operating costs include payroll related to our operating properties, repairs and maintenance costs, insurance, property taxes, utilities, and ground leases amortization.
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General and Administrative.   General and administrative expenses include corporate level payroll, professional fees, travel and related expenses and communications and information services. We expect that general and administrative expenses will vary due to infrequent or unusual items such as expenses associated with litigation and contingencies. Also, in periods of significant fund raising, our general and administrative expenses will increase accordingly.
Marketing and Advertising.   The majority of our marketing and advertising spend is done by our hotel operations to help increase room stays and promote corporate events. This category also contains the costs spent directly by Caliber to hold Caliber Summit monthly and annual events. These events raise awareness in the investment community about Caliber’s newest funds and is an important part of Caliber’s ability to raise capital for new projects.
Franchise Fees.   These fees are paid by the hotels to maintain their brand each year and are based on a percentage of the revenue generated by each hotel respectively.
Management Fees.   These costs represent fees paid to third-party service providers. All management fees paid to Caliber by a consolidated fund, are eliminated in consolidation.
Depreciation.   Depreciation is recorded using the straight-line method over the estimated useful lives of the related property, plant, and equipment and ranges from 3 to 40 years depending on the asset type.
Impairment.   If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the asset.
Other (Income) Expenses
Other (income) expenses include interest expense, interest income, (gains)/losses from deposition of real estate, and all other non-operating income and expenses.
Cautionary Statement Regarding Non-GAAP Measures
We present assets under management or “AUM”, EBITDA, and Adjusted EBITDA in this Offering Circular, which are not recognized financial measures under accounting principles generally accepted in the United States of America (“GAAP”), as supplemental disclosures because we regularly review the metrics to evaluate our funds, measure our performance, identify trends, formulate financial projections and make strategic decisions.
Assets Under Management.   AUM refers to the assets we manage or advise. We monitor three types of AUM:
(i)
Capital AUM — This is the total debt and equity capital raised from accredited investors in our Funds at any point in time. We use this information to monitor, among other things, the amount of  ‘preferred return’ that would be paid at the time of a distribution. Our asset management fees are based on a percentage of capital raised so we monitor Capital AUM to understand and predict our earnings. We earn asset management fees on the equity capital raised into our Funds, and do not earn fees on debt capital or any capital raised directly in Caliber.
(ii)
Fair Value (“FV”) AUM — This is the aggregate fair value of the real estate assets we manage or advise. We value our operating assets annually to help make sale and hold decisions and to evaluate whether an existing asset would benefit from refinancing or recapitalization. This also gives us insight into our carried interest.
(iii)
Book Value (“BV”) AUM — This is the aggregate carrying value of the real estate assets we manage or advise at any point in time.
EBITDA.   EBITDA represents earnings before net interest expense, income taxes, depreciation, and amortization.
37

Adjusted EBITDA.   Adjusted EBITDA represents earnings before net interest expense, income taxes, depreciation, amortization, impairment expense, loss on extinguishment of debt, severance payments, founders income tax reimbursement, costs associated with the vesting of our Employee Stock Option Plan (“ESOP”) and certain cash and non-cash charges related to legal and accounting costs associated with getting the Company prepared for filing this Offering Circular.
Our calculation of Capital AUM and FV AUM may differ from our competitors, thereby making these metrics non-comparable to our competitors. Our AUM calculations are not based on any definition of AUM that is set forth in the respective operating agreements governing the funds we manage or advise.
When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. We generally use these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe that these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. Because not all companies use identical calculations, our presentation of EBITDA and adjusted EBITDA may not be comparable to similarly identified measures of other companies.
EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. These measures may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.
Consolidation of Certain Caliber Funds
The Company consolidates all entities that it controls either through majority voting interest or as the primary beneficiary of variable interest entities. On January 1, 2016, the Company adopted ASU 2015-2, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which provides a revised consolidation model for all reporting entities to use in evaluating whether to consolidate certain types of legal entities. Certain of Caliber’s funds are consolidated by Caliber even though Caliber has only a minority economic interest in those funds. Caliber’s financial statements reflect the assets, liabilities, revenues, expenses, and cash flows of the Consolidated Funds, on a gross basis. The majority of the economic interest in the Consolidated Funds, which are held by fund investors or other third parties, are attributed to noncontrolling interests in our consolidated financial statements. All of our management fees, construction revenues, and certain other amounts earned by Caliber from those funds are eliminated in consolidation. Further information on our consolidation policy can be found in Note 2 to the consolidated financial statements included in this Form 1-A.
As of June 30, 2019, December 31, 2018 and 2017, our Consolidated Funds represent approximately 50.8%, 59.4% and 63.6% of our AUM, respectively, and 67.3%, 55.7% and 33.8% of our management fees, respectively.
Consolidated Results of Operations
Comparison of Six Months Ended June 30, 2019 and 2018
The following table and discussion provides insight into our consolidated results of operations for the six months ended June 30, 2018 and 2017.
Six Months Ended June 30,
2019
2018
Change
Change
Total revenues
$ 43,796,783 $ 37,027,074 $ 6,769,709 18.3 %
Total expenses
36,541,624 35,097,535 1,444,089 4.1 %
Operating Income
7,255,159 1,929,539 5,325,620 276.0 %
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Six Months Ended June 30,
2019
2018
Change
Change
Total other expenses, net
5,617,495 5,821,669 (204,174 ) (3.5 )%
Net Income (Loss) Before Income Taxes
1,637,664 (3,892,130 ) 5,529,794 (142.1 )%
Provision for (benefit from) income taxes
0.0 %
Net Income (Loss)
1,637,664 (3,892,130 ) 5,529,794 (142.1 )%
Net loss attributable to noncontrolling interests
4,343 2,083,288 (2,078,945 ) (99.8 )%
Net Income (Loss) Attributable to CaliberCos Inc.
$ 1,642,007 $ (1,808,842 ) $ 3,450,849 (190.8 )%
For the six months ended June 30, 2019 and 2018, total revenues were approximately $43.8 million and approximately $37.0 million, respectively, representing a period over period increase of approximately $6.8 million or 18.3%. This increase was largely due to the acquisition of two new hotels added to our portfolio in the second half of 2018 and an increase in our asset management and related fees which resulted from the growth in our capital under management and the introduction of two new Fund products.
For the six months ended June 30, 2019 and 2018, total expenses were approximately $36.5 million and approximately $35.1 million, respectively, representing a period over period increase of approximately $1.4 million or 4.1%. This increase was largely due to the acquisition of two new hotels added to our portfolio in the second half of 2018.
For the six months ended June 30, 2019 and 2018, total other expenses, net were approximately $5.6 million and approximately $5.8 million, respectively, representing a period over period decrease of approximately $0.2 million or 3.5%. We have actively managed our cost of capital across the organization and reduced interest expense by approximately $0.9 million by repaying high interest rate debt and refinancing existing facilities at lower rates of interest. This decrease in interest expense was offset by the increase in other expenses period over period resulting from the effect of collecting $0.9 million in insurance proceeds on our GC Square, LLC asset in 2018.
Comparison of Years Ended December 31, 2018 and 2017
The following table and discussion provides insight into our consolidated results of operations for the years ended December 31, 2018 and 2017.
2018
2017
Change
Change
Total revenues
$ 70,672,140 $ 64,419,136 $ 6,253,004 9.7 %
Total expenses
71,593,143 63,331,217 8,261,926 13.0 %
Operating (Loss) Income
(921,003 ) 1,087,919 (2,008,922 ) (184.7 )%
Total other expenses, net
12,152,622 9,593,503 2,559,119 26.7 %
Net Loss Before Income Taxes
(13,073,625 ) (8,505,584 ) (4,568,041 ) 53.7 %
Provision for (benefit from) income taxes
0.0 %
Net Loss
(13,073,625 ) (8,505,584 ) (4,568,041 ) 53.7 %
Net loss attributable to noncontrolling interests
(10,080,924 ) (5,802,121 ) (4,278,803 ) 73.7 %
Net Loss Attributable to CaliberCos Inc
$ (2,992,701 ) $ (2,703,463 ) $ (289,238 ) 10.7 %
For the years ended December 31, 2018 and 2017, total revenue was $70.7 million and $64.4 million, respectively, representing a year-over-year increase of  $6.3 million or 9.7%. Of the increase in revenue, $2.6 million is due to revenue generated by two new hotels that we acquired in July 2018. In addition, we were successful in generating an additional $2.7 million from increases to rate and occupancy across our hotel portfolio. We continued to increase fund management fees by approximately $3.1 million corresponding to the increased growth of our consolidated capital under management of approximately $23 million and the opening of our Caliber Tax Advantaged Fund, and Caliber Fixed Income Fund III. This was offset by a reduction in our real estate sales of approximately $1.5 million as we continue to sell the remainder of the Caliber Auction Homes portfolio.
39

For the years ended December 31, 2018 and 2017, total expenses were $71.6 million and $63.3 million, respectively, representing a year-over-year increase of  $8.3 million or 13.0%. The increase is driven primarily in our hospitality and fund management segments. Increases in our hospitality segment are driven by the acquisition of two new hotels in July 2018 in addition to the increased performance of our hotel portfolio. These changes drove a $2.2 million increase in cost of goods sold, $1.5 million increase of operating costs (net of certain reclassifications out of general and administrative expenses), $0.5 million increase in marketing and advertising, $0.5 million increase in franchise fees, and $1.1 million increase in depreciation expense. As we continued to raise more capital and acquire more assets, we realized increases in our fund management segment resulting in increases of  $3.1 million in operating costs and $0.2 million in advertising and marketing. These changes were offset by a decrease in expenses for the other segments.
For the years ended December 31, 2018 and 2017, total other expenses were $12.2 million and $9.6 million, respectively, representing a year-over-year increase of  $2.6 million or 26.7%. The increase relates to higher interest expense generated by the addition of two new hotels and the refinancing of approximately $95 million in debt that was due in the period. This was offset by the sale of our Uptown apartments in 2017 which generated a $1.6 million gain in the prior year. In addition, we have historically financed our operations primarily through a combination of operating cash flows, private offerings of our equity securities, and secured and unsecured debt. At December 31, 2018, we had approximately $7.3 million in corporate debt which carries interest rates ranging from 8.25% up to 12.00%, resulting in approximately $0.9 million in interest expense for the year. We plan on using approximately $7.3 million of the net proceeds of the Offering to eliminate this debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. For this reason, we believe we will be able to recognize substantial cost savings and generate increased cash flow from core operations, as well as enabling us to introduce more affordable financing from traditional sources to take advantage of market opportunities which may have previously been unavailable.
Segment Analysis
The following discussion is specific to our various segments for the periods presented. Our segment information is presented in a format consistent with the information senior management uses to make operating decisions, assess performance and allocate resources.
For the six months ended June 30, 2019, the Company reclassified certain business activities which were previously reported under the Residential segment into the Real Estate Brokerage segment. These activities included the Company’s wholly owned Caliber Auction Homes single family portfolio and our wholly owned investment in Saddleback Ranch. These reclassifications have been reflected in previously reported amounts to conform to the current year presentation.
For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates our Consolidated Funds. As a result, segment revenues from construction and development income, fund management fees, and brokerage income are different than those presented on a consolidated US GAAP basis because these fees are eliminated in consolidation when they are derived from a consolidated fund. Furthermore, segment expenses are also different than those presented on a consolidated US GAAP basis due to the exclusion of fund expenses that are paid by the consolidated funds.
40

Comparison of Six Months Ended June 30, 2019 and 2018
Fund Management
The following table presents our results of operations for our Fund Management segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Fund management
$ 5,563,845 $ 2,562,866 $ 3,000,979 117.1 %
Total revenues
5,563,845 2,562,866 3,000,979 117.1 %
Expenses
Operating costs
3,045,262 2,966,636 78,626 2.7 %
General and administrative
847,286 990,065 (142,779 ) (14.4 )%
Marketing and advertising
140,856 265,561 (124,705 ) (47.0 )%
Depreciation
28,612 53,006 (24,394 ) (46.0 )%
Total expenses
4,062,016 4,275,268 (213,252 ) (5.0 )%
Operating Income (Loss)
1,501,829 (1,712,402 ) 3,214,231 (187.7 )%
Other (Income) Expenses
Other expenses (income), net
25,198 (53,450 ) 78,648 (147.1 )%
Interest expense
408,519 499,646 (91,127 ) (18.2 )%
Total other expenses, net
433,717 446,196 (12,479 ) (2.8 )%
Net Income (Loss)
$ 1,068,112 $ (2,158,598 ) $ 3,226,710 (149.5 )%
Fund management revenue increased by approximately $3.0 million during the six months ended June 30, 2019 as compared to the same period in 2018. Approximately $1.6 million of this increase relates to earnings generated from the sale of our South Mountain Square apartment building in February 2019. Asset management and accounting fees also increased. We generally earn 1.5% on the total capital managed for each Fund and have increased our net capital by approximately $63.8 million between June 30, 2018 and June 30, 2019, thereby increasing our asset management fee from June 30, 2018 to June 30, 2019 by approximately $0.7 million. Additionally, we generated approximately $0.8 million of additional revenue from raising approximately $40.0 million of net investor capital for the period ended June 30, 2019 compared to $14.0 million of investor capital raised for the period ended June 30, 2018.
General and administrative decreased by approximately $0.1 million during the six months ended June 30, 2019 as compared to the same period in 2018 due to a reduction in the need for professional fees associated with legal and accounting consultants. In addition, marketing and advertising decreased by approximately $0.1 million during the six months ended June 30, 2019 as compared to the same period in 2018 due to the Company focusing more of its marketing efforts on promoting the Caliber Tax Advantaged Opportunity Zone fund and less time on marketing Caliber.
41

Construction and Development
The following table presents our results of operations for our Construction and Development segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Construction and development
$ 2,701,707 $ 6,886,173 $ (4,184,466 ) (60.8 )%
Other
2,026 6,747 (4,721 ) (70.0 )%
Total revenues
2,703,733 6,892,920 (4,189,187 ) (60.8 )%
Expenses
Cost of sales – construction
and development
2,345,109 6,468,121 (4,123,012 ) (63.7 )%
Operating costs
421,001 285,453 135,548 47.5 %
General and administrative
37,541 14,268 23,273 163.1 %
Marketing and advertising
13,327 7,523 5,804 77.2 %
Total expenses
2,816,978 6,775,365 (3,958,387 ) (58.4 )%
Net (Loss) Income
$ (113,245 ) $ 117,555 $ (230,800 ) (196.3 )%
Construction and development revenues decreased by approximately $4.2 million during the six months ended June 30, 2019 as compared to the same period in 2018. Our GC Square project was completed in 2018 and totaled approximately $2.6 million. In addition, we completed the Hilton Tucson project in 2018 which totaled approximately $1.2 million.
Cost of sales decreased due to the reduction in revenues over the same period. However, we have actively begun sourcing more third party construction work which commands a higher margin than what we would charge for our own fund assets.
Property Management
The following table presents our results of operations for our Property Management segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Rental income
$ 545 $ $ 545 100.0 %
Property management
176,401 250,409 (74,008 ) (29.6 )%
Other
19,717 43,519 (23,802 ) (54.7 )%
Total revenues
196,663 293,928 (97,265 ) (33.1 )%
Expenses
Operating costs
27,669 137,094 (109,425 ) (79.8 )%
General and administrative
6,238 23,404 (17,166 ) (73.3 )%
Marketing and advertising
3,155 11,668 (8,513 ) (73.0 )%
Management fees
925 (925 ) (100.0 )%
Total expenses
37,062 173,091 (136,029 ) (78.6 )%
Net Income
$ 159,601 $ 120,837 $ 38,764 32.1 %
Property management income and expenses remained relatively consistent period over period despite selling off our South Mountain Square, LLC apartment asset in February 2019 and outsourcing the management of some of our apartment assets. These actions resulted in a slight reduction to our segment overhead as we eliminated certain non-essential roles and realigned certain internal functions.
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Real Estate Brokerage
The following table presents our results of operations for our Real Estate Brokerage segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Real estate sales
$ 1,409,890 $ 3,714,200 $ (2,304,310 ) (62.0 )%
Rental income
44,084 182,986 (138,902 ) (75.9 )%
Property management
612 87 525 603.4 %
Brokerage
602,171 1,000,492 (398,321 ) (39.8 )%
Other
276 (276 ) (100.0 )%
Total revenues
2,056,757 4,898,041 (2,841,284 ) (58.0 )%
Expenses
Cost of sales – real estate
760,117 3,344,740 (2,584,623 ) (77.3 )%
Cost of sales – brokerage
231,799 591,453 (359,654 ) (60.8 )%
Operating costs
123,996 195,689 (71,693 ) (36.6 )%
General and administrative
7,833 47,813 (39,980 ) (83.6 )%
Marketing and advertising
31,083 33,777 (2,694 ) (8.0 )%
Management fees
2,415 10,935 (8,520 ) (77.9 )%
Depreciation
77,155 166,938 (89,783 ) (53.8 )%
Impairment
38,125 (38,125 ) (100.0 )%
Total expenses
1,234,398 4,429,470 (3,195,072 ) (72.1 )%
Operating Income
822,359 468,571 353,788 75.5 %
Other (Income) Expenses
Other income, net
(38,260 ) (38,260 ) 100.0 %
Interest income
(1,337 ) (4,019 ) 2,682 (66.7 )%
Interest expense
229,085 359,367 (130,282 ) (36.3 )%
Total other expenses, net
189,488 355,348 (165,860 ) (46.7 )%
Net Income
$ 632,871 $ 113,223 $ 519,648 459.0 %
Real estate sales and cost of sales — real estate represents the sale of our legacy Caliber Auction Home assets. For the six months ended June 30, 2019 sales and cost of sales decreased by approximately $2.3 million and $2.6 million, respectively, compared to the prior year. In 2018, we sold 16 properties with sales prices ranging from $115,000 to $550,000. In 2019 we sold three properties.
Real estate brokerage income and expenses decreased consistently period over period. For the six months ended June 30, 2019, brokerage income and cost of sales — brokerage decreased by approximately $0.4 million and $0.4 million respectively. This is due to a decrease in the number of agents. In 2019, we had 20 agents compared to 30 in 2018. In addition, we also completed more transactions in 2019 that did not require us to pay a commission to a third party for assisting with closing on a real estate transaction as compared to 2018.
43

Hospitality
The following table presents our results of operations for our Hospitality segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Hospitality
$ 33,150,460 $ 27,050,571 $ 6,099,889 22.5 %
Total revenues
33,150,460 27,050,571 6,099,889 22.5 %
Expenses
Cost of sales – hospitality
11,278,818 9,494,557 1,784,261 18.8 %
Operating costs
5,693,213 4,620,209 1,073,004 23.2 %
General and administrative
2,158,840 1,700,673 458,167 26.9 %
Marketing and advertising
2,525,036 1,852,500 672,536 36.3 %
Franchise fees
2,398,823 1,962,388 436,435 22.2 %
Management fees
2,208,063 936,878 1,271,185 135.7 %
Depreciation
3,518,859 3,243,160 275,699 8.5 %
Total expenses
29,781,652 23,810,365 5,971,287 25.1 %
Operating Income (Loss)
3,368,808 3,240,206 128,602 4.0 %
Other (Income) Expenses
Other expenses, net
572,252 1,163,655 (591,403 ) (50.8 )%
Interest income
(22,909 ) (39,868 ) 16,959 (42.5 )%
Interest expense
4,474,599 4,910,859 (436,260 ) (8.9 )%
Total other expenses, net
5,023,942 6,034,646 (1,010,704 ) (16.7 )%
Net Loss
$ (1,655,134 ) $ (2,794,440 ) $ 1,139,306 (40.8 )%
For the six months ended June 30, 2019 our hospitality segment revenues increased by approximately $6.1 million to approximately $33.2 million compared to the same period in 2018 of approximately $27.1 million due to the addition of two new hotels that were acquired in the second half of 2018. In addition, we were successful at increasing our revenue per available room across our hotel portfolio. Through the six months ended June 30, 2019 our average revenue per available room grew to $87 from $83 over the same period in 2018.
Total expenses increased by approximately $6.0 million to approximately $29.8 million for the six months ended June 30, 2019 compared to the same period in 2018 of approximately $23.8 million. This was due to the addition of two new hotels that were acquired in the second half of 2018.
Other expenses, net decreased by approximately $0.6 million during the six months ended June 30, 2019 as compared to the same period in 2018 due to the costs incurred in 2018 to complete the acquisition of Sheraton Four Points in Phoenix, Arizona (Elliot & 51st St, LLC) which were not replicated in 2019.
Interest expense decreased by approximately $0.4 million during the six months ended June 30, 2019 as compared to the same period in 2018. The decrease is the result of our success at refinancing our three airport hotel portfolio in 2018 which resulted in our borrowing rate decreasing by approximately 2% from a blended 8% for the six months ended June 30, 2018 compared to 6% for the same period in 2019. This was offset by two new hotel acquisitions which added approximately $20 million of additional debt to the portfolio.
44

Residential
The following table presents our results of operations for our Residential segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Rental income
$ 4,316,012 $ 3,744,569 $ 571,443 15.3 %
Property management
20,853 23,758 (2,905 ) (12.2 )%
Other
9,412 13,395 (3,983 ) (29.7 )%
Total revenues
4,346,277 3,781,722 564,555 14.9 %
Expenses
Operating costs
2,104,654 1,902,154 202,500 10.6 %
General and administrative
278,615 237,439 41,176 17.3 %
Marketing and advertising
129,518 126,380 3,138 2.5 %
Management fees
152,237 179,197 (26,960 ) (15.0 )%
Depreciation
1,133,545 845,534 288,011 34.1 %
Total expenses
3,798,569 3,290,704 507,865 15.4 %
Operating Income
547,708 491,018 56,690 11.5 %
Other (Income) Expenses
Other income, net
(271,858 ) (694,550 ) 422,692 (60.9 )%
Income from investments
(87,619 ) (87,619 ) 100.0 %
Interest income
(1,804 ) (15,096 ) 13,292 (88.0 )%
Interest expense
1,084,212 1,122,236 (38,024 ) (3.4 )%
Total other expenses, net
722,931 412,590 310,341 75.2 %
Net (Loss) Income
$ (175,223 ) $ 78,428 $ (253,651 ) (323.4 )%
Rental income increased by approximately $0.6 million during the six months ended June 30, 2019 as compared to the same period in 2018. The increase is due to the success of our lease up of our GC Square, LLC apartment which added approximately $0.8 million of additional rental income. This increase was offset by approximately $0.3 million in rental income no longer generated due to the sale of our Mountain View Square, LLC apartment in October 2018 and the sale of our South Mountain Square, LLC apartments in February 2019.
Operating costs and depreciation both increased for the six months ended June 30, 2019 compared to the same period in 2018 by approximately $0.2 million and $0.3 million, respectively. This was due to our GC Square, LLC apartment being put into full operation resulting in increased payroll and utilities and the commencement of amortization of the operating assets.
Other income, net decreased by approximately $0.4 million during the six months ended June 30, 2019 as compared to the same period in 2018 due to the collection of insurance proceeds related to our GC Square, LLC property which we realized in 2018.
45

Commercial
The following table presents our results of operations for our Commercial segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Rental income
$ 479,022 $ 500,904 $ (21,882 ) (4.4 )%
Property management
60 60 100.0 %
Other
210 6 204 100.0 %
Total revenues
479,292 500,910 (21,618 ) (4.3 )%
Expenses
Operating costs
264,427 285,100 (20,673 ) (7.3 )%
General and administrative
150,245 141,973 8,272 5.8 %
Marketing and advertising
25,009 11,406 13,603 119.3 %
Management fees
80,946 87,870 (6,924 ) (7.9 )%
Depreciation
92,528 121,710 (29,182 ) (24.0 )%
Total expenses
613,155 648,059 (34,904 ) (5.4 )%
Operating Loss
(133,863 ) (147,149 ) 13,286 (9.0 )%
Other (Income) Expenses
Other expenses, net
33,557 27,450 6,107 22.2 %
Gain on disposition of real estate
(401,557 ) (726,977 ) 325,420 (44.8 )%
Interest expense
628,583 639,501 (10,918 ) (1.7 )%
Total other expenses (income), net
260,583 (60,026 ) 320,609 (534.1 )%
Net Loss
$ (394,446 ) $ (87,123 ) $ (307,323 ) 352.7 %
Gain on disposition of real estate decreased by approximately $0.3 million between the six months ended June 30, 2019 compared to the same period in 2018. During June 30, 2019, we sold our investment in Downtown Mesa and during June 30, 2018, we sold a small land parcel related to our Johnstown project.
46

Diversified
The following table presents our results of operations for our Diversified segment:
Six Months Ended June 30,
2019
2018
Change
Change
Revenues
Total revenues
$ $ $ %
Expenses
Operating costs
19,197 620,795 (601,598 ) (96.9 )%
General and administrative
327,610 292,413 35,197 12.0 %
Marketing and advertising
820,534 25,698 794,836 3093.0 %
Management fees
960,559 345,559 615,000 178.0 %
Total expenses
2,127,900 1,284,465 843,435 65.7 %
Operating Loss
(2,127,900 ) (1,284,465 ) (843,435 ) 65.7 %
Other (Income) Expenses