The following questions and answers about this offering highlight material information regarding us and this offering that is not otherwise addressed in the “Offering Summary” section of this offering circular. You should read the entire offering circular, including the section entitled “Risk Factors,” before deciding to purchase our common shares.
A: We were recently formed as a Delaware limited liability company to invest in, acquire and manage a portfolio of residential real estate properties in Manhattan, a borough of New York City. We expect to use substantially all the net proceeds from this offering to structure a portfolio of residential properties including condominium and co-op interests, single-family homes or multi-family properties, which we refer to collectively as our targeted investments.
A: We are externally managed by Commencement NY LLC, a Delaware limited liability company, or our Manager. Our Manager is wholly owned by Commencement Capital LLC, a New York limited liability company, or our sponsor. Our Manager will make all of our investment decisions.
A: Our Manager will utilize the personnel and resources of our sponsor to select our investments and manage our day-to-day operations, and will thereby benefit from the following:
A: We are offering a maximum of $50,000,000 in our common shares to the public on a “best efforts” basis at $10.00 per share. This offering is being conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A, meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of the offering. Further, the acceptance of subscriptions may be briefly paused at times to allow us to effectively and accurately process and settle subscriptions that have been received.
A: Our Manager set our offering price at $10.00 per share, an arbitrary number chosen for ease of calculations.
A: We will pay our Manager acquisition fees, asset management fees, and exit fees. We will reimburse our Manager for the organization and offering expenses that our Manager has paid or will pay on our behalf, up to a maximum of $500,000. We will also reimburse our Manager for out-of-pocket expenses in connection with our operations and the acquisition of our investments and for out-of-pocket expenses paid to third parties in connection with providing services to us. This does not include our Manager’s overhead, employee costs borne by our Manager, utilities or technology costs. The payment by us of fees and expenses will reduce the cash available for investment and distribution and will directly impact the market value of our common shares. See “Management Compensation” for more details regarding the fees that will be paid to our Manager.
A: Yes, we intend to use leverage. Our targeted portfolio-wide leverage, after we have acquired a substantial portfolio, is between 30-60% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring our initial portfolio, we may employ greater leverage on individual assets (that will also result in greater leverage of the interim portfolio) in order to quickly build a diversified portfolio of assets. Please see “Investment Objectives and Strategy” in the offering circular for more details.
A: We plan to own substantially all of our assets and conduct our operations through NY Res REIT LP, a Delaware limited partnership, which we refer to as our operating partnership. Because we plan to conduct substantially all our operations through the operating partnership, we are considered an UPREIT. UPREIT stands for “Umbrella Partnership Real Estate Investment Trust.” Using an UPREIT structure may give us an advantage in acquiring properties from persons who may not otherwise sell their properties because of certain unfavorable U.S. federal income tax consequences.
A: We do not expect to declare any distributions until some of the proceeds from our public offering are invested and generating operating cash flow. Once we begin to make distributions, we expect that our Manager will declare and make them on a quarterly basis, or less frequently as determined by our Manager, in arrears. Any distributions we make will be at the discretion of our Manager, and will be based on, among other factors, our present and reasonably projected future cash flow. We expect that our Manager will set the rate of distributions at a level that will be reasonably consistent and sustainable over time. See “Description of Our Common Shares — Distributions.”
A: While our goal is to pay distributions from our cash flow from operations, we may use other sources to fund distributions. Until the proceeds from our public offering are invested and generating operating cash flow, some or all of our distributions may be paid from other sources, including the net proceeds of this offering, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager, borrowings in anticipation of future operating cash flow and the issuance of additional securities. Use of some of or all these sources may reduce the amount of capital we invest in assets and negatively impact the return on your investment and the value of your investment. We have not established a limit on the amount of proceeds we may use to fund distributions. We can provide no assurances that future cash flow will support payment of distributions or maintaining distributions at any particular level or at all.
A: Unless your investment is held in a qualified tax-exempt account or we designate certain distributions as capital gain dividends, distributions that you receive generally will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. The portion of your distribution in excess of current and accumulated earnings and profits is considered a return of capital for U.S. federal income tax purposes and will reduce the tax basis of your investment, rather than result in current tax, until your basis is reduced to zero. Return of capital distributions made to you in excess of your tax basis in our common shares will be treated as sales proceeds from the sale of our common shares for U.S. federal income tax purposes. Distributions we designate as capital gain dividends will generally be taxable at long-term capital gains rates for U.S. federal income tax purposes. However, because each investor’s tax considerations are different, we recommend that you consult with your tax advisor. You also should review the section of this offering circular entitled “U.S. Federal Income Tax Considerations,” including for a discussion of the special rules applicable to distributions in redemption of shares and liquidating distributions.
A: Investing in our common shares involves a high degree of risk. If we are unable to effectively manage the impact of these risks, we may not meet our investment objectives, and therefore, you should purchase these securities only if you can afford a complete loss of your investment. See “Risk Factors” for a description of the risks relating to this offering and an investment in our shares.
A: When common shares are offered to the public on a “best efforts” basis, we are only required to use our best efforts to sell our common shares. Neither our sponsor, Manager nor any other party has a firm commitment or obligation to purchase any of our common shares.
A: Generally, you may purchase shares if you are a “qualified purchaser” (as defined in Regulation A under the Securities Act). “Qualified purchasers” include:
Net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles. We reserve the right to reject any investor’s subscription in whole or in part for any reason, including if we determine in our sole and absolute discretion that such investor is not a “qualified purchaser” for purposes of Regulation A. Please refer to the section above entitled “State Law Exemption and Purchase Restrictions” for more information.
A: You will need to fill out a subscription agreement like the one included as an exhibit to the offering statement of which this offering circular forms a part for a certain investment amount and pay for the shares at the time you subscribe.
A: Yes. You must initially purchase at least 100 shares in this offering, or $1,000. There is no minimum investment requirement on additional purchases after you have purchased a minimum of 100 shares.
A: Yes. You may make an investment through your IRA or other tax-deferred retirement account. In making these investment decisions, you should consider, at a minimum, (1) whether the investment is in accordance with the documents and instruments governing your IRA, plan or other retirement account, (2) whether the investment would constitute a prohibited transaction under applicable law, (3) whether the investment satisfies the fiduciary requirements associated with your IRA, plan or other retirement account, (4) whether the investment will generate unrelated business taxable income, or UBTI, to your IRA, plan or other retirement account, and (5) whether there is sufficient liquidity for such investment under your IRA, plan or other retirement account. You should note that an investment in our common shares will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Internal Revenue Code of 1986, as amended, or the Code.
A: Yes. We will not start operations until we have raised at least $1,000,000 in this offering (including proceeds from common shares purchased by affiliates of our Manager). Until the minimum threshold is met, investors’ funds will remain in an escrow account at Prime Trust and investors will not be admitted as shareholders. The funds will be drawn by us only after the $1,000,000 minimum threshold has been met.
A: If the minimum threshold is not met by May 1, 2018, subject to our right to extend by up to 60 days, we will cancel the offering and the escrow agent will promptly return to each subscriber all funds provided by such subscriber without interest or deduction.
A: We expect to use substantially all the net proceeds from this offering (after paying or reimbursing organization and offering expenses) to invest in and manage a portfolio of residential real estate properties in Manhattan. We expect that any expenses or fees payable to our Manager for its services in connection with managing our daily affairs, including but not limited to, the selection and acquisition of our investments, will be paid from cash flow from operations. If such fees and expenses are not paid from cash flow (or waived) they will reduce the cash available for investment and distribution and will directly impact the market value of our common shares. See “Management Compensation” for more details regarding the fees that will be paid to our Manager and its affiliates.
We may not be able to promptly invest the net proceeds of this offering in our targeted assets. In the interim, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn as high of a return as we expect to earn on our real estate-related investments.
A: We currently expect that this offering will remain open for investors until we raise the maximum amount being offered, unless terminated by us at an earlier time. We reserve the right to terminate this offering for any reason at any time.
A: Yes, we will provide you with periodic updates on the performance of your investment in us, including:
We will provide this information to you by posting such information on the SEC’s website at www.sec.gov, on our website at www.nyresidentialreit.com, via e-mail, or, upon your consent, via U.S. mail.
A: Your Form 1099-DIV tax information, if required, will be provided by January 31 of the year following each taxable year.
A: If you have more questions about the offering, or if you would like additional copies of this offering circular, you should contact us by email at IR@commencementcapital.com or by mail at:
NY Residential REIT, LLC
c/o Commencement Capital LLC
555 Madison Avenue, 6th Floor
New York, NY 10022
Attn: Investor Relations