UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): November 20, 2015
Bluerock Residential Growth REIT, Inc. |
(Exact Name of Registrant as Specified in Its Charter) |
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Maryland |
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001-36369 |
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26-3136483 |
(State or other jurisdiction of
incorporation or organization) |
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(Commission File Number)
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(I.R.S. Employer
Identification No.) |
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712 Fifth Avenue, 9th Floor
New York, NY 10019 |
(Address of principal executive offices) |
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(212) 843-1601 |
(Registrant’s telephone number, including area code) |
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None. |
(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form
8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c)) |
| ITEM 1.01 | ENTRY INTO MATERIAL DEFINITIVE AGREEMENT |
The disclosure
below describes our investment in the Domain joint venture. All figures provided below are approximate.
On November 20, 2015,
Bluerock Residential Growth REIT, Inc., through our operating partnership, Bluerock Residential Holdings, L.P., a Delaware limited
partnership, or our Operating Partnership, made an investment in BR – ArchCo Domain Phase 1 JV, LLC, a Delaware limited liability
company, or Phase 1 JV.
Specifically,
our Operating Partnership made the investment in Phase 1 JV through BRG Domain Phase 1, LLC, a Delaware limited liability
company and a wholly owned subsidiary of our Operating Partnership, or BRG Phase 1, which acquired a preferred equity
interest convertible into a majority common equity interest, or the BRG Phase 1 Interest, in BR Member Domain Phase 1, LLC, a
Delaware limited liability company, or BR Phase 1 JV Member, which acquired a 100% limited liability company interest in
Phase 1 JV, which is the owner and holder of a 100% limited liability company interest in BR – ArchCo Domain Phase 1,
LLC, a Delaware limited liability company, or Phase 1 Owner.
Concurrently and through
Phase 1 JV, we caused Phase 1 Owner to acquire that certain tract of land located in Garland, Texas consisting of 10.1 acres and
situated at the southwest corner of Bunker Hill Road and the now abandoned Old Miles Road, or the Phase 1 Property, pursuant to
that certain Agreement of Purchase and Sale by and between ArchCo Residential LLC, or ArchCo, and RCM Firewheel, LLC, dated May
6, 2015, as amended, or the PSA, which PSA was assigned to Phase 1 Owner in that certain Phase I Partial Assignment and Assumption
of Agreement of Purchase and Sale, by and between ArchCo and Phase 1 Owner, dated November 20, 2015.
In conjunction with
our investment in the Phase 1 JV, we acquired options to purchase two additional contiguous tracts of land lying to the northwest
of the Phase 1 Property and fronting Bunker Hill Road, or the Phase 2 Option and the Phase 3 Option, respectively.
The
total purchase price paid for the Phase 1 Property was $3,988,250. The purchase price paid for each of the Phase 2 Option and
the Phase 3 Option (each, an Option, and together, the Options), was $50,000 per Option. The purchase of the Phase 1
Property and the Options were based on arm’s length negotiations with an unaffiliated seller. In evaluating the Phase 1
Property, the Phase 2 Option and underlying property and the Phase 3 Option and underlying property as potential investments,
a variety of factors were considered, including overall valuation, expected capital expenditures, submarket
demographics, expected community features and amenities, location, expected price per unit and expected occupancy.
The
organizational structure with respect to the ownership of the Phase 1 Property is such that: (i) the Phase 1 Property is
owned by Phase 1 Owner and (ii) Phase 1 Owner is wholly owned by Phase 1 JV. Phase 1 JV is a joint venture entity owned 100%
by BR Phase 1 JV Member with ArchCo Domain Member LLC, a Delaware limited liability company, or the ArchCo Phase 1 Member,
having a profit interest in the Phase 1 JV equal to 12% of profits after the BR Phase 1 JV Member receives a 15% internal
rate of return, compounded monthly, on capital contributions, or the ArchCo Promote.
BR Phase 1 JV Member
BRG Phase 1 has
made an initial investment of $4,160,700, including $400,000 in reserves to fund the preferred return over a portion of
the projected development period, to acquire the BRG Phase 1 Interest, and Bluerock Special Opportunity + Income Fund II,
LLC, a Delaware limited liability company and an affiliate of our manager, or SOIF II, has made an initial investment of
$441,200 to acquire the common equity of BR Phase 1 JV Member. BRG Phase 1 and SOIF II have entered into a joint venture
operating agreement for the BR Phase 1 JV Member, or the BRG Phase 1 JV Agreement.
The BRG Phase 1 JV
Agreement contains terms, conditions, and indemnities that are customary and standard for convertible preferred equity investments
in joint ventures in the real estate industry.
Management and Major
Decisions
SOIF II will be the
initial manager of BR Phase 1 JV Member, and will have the power and authority to govern the business of BR Phase 1 JV Member,
subject to the approval of certain “major decisions” by members holding a majority of the equity interests and subject
to the further requirement that the economic interests of BRG Phase 1 and other rights in and to the Phase 1 Property may not be
diluted or altered in a manner that would cause a dilution of or material adverse effect on BRG Phase 1 without its prior written
consent. These major decisions include: (i) any act in contravention of the BRG Phase 1 JV Agreement; (ii) any act that would make
it impossible to carry out the ordinary business of BR Phase 1 JV Member, Phase 1 JV or Phase 1 Owner; (iii) confessing a judgment
against BR Phase 1 JV Member; (iv) possessing or assigning property of BR Phase 1 JV Member, Phase 1 JV or Phase 1 Owner for other
than such company’s purposes; (v) admitting a new manager; (vi) admitting a new member; (vii) continuing the business of
BR Phase 1 JV Member in contravention of the BRG Phase 1 JV Agreement; and (vii) making any loans or becoming a guarantor of any
loans. Additionally, the following actions are subject to the sole approval of BRG Phase 1 (so long as it owns a preferred equity
interest): (i) causing BR Phase 1 JV Member to approve any major decision of Phase 1 JV; (ii) approving any amendment of the operating
agreement of Phase 1 JV; (iii) filing or consenting to any bankruptcy, insolvency or similar action or proceeding regarding BR
Phase 1 JV Member, Phase 1 JV or Phase 1 Owner; (iv) dissolving or liquidating the BR Phase 1 JV Member; (v) distributing any cash
or property other than in accordance with the operating agreement of BR Phase 1 JV Member; (vi) merging or consolidating BR Phase
1 JV Member; (vii) amending the operating agreement of BR Phase 1 JV Member; and (viii) causing BR Phase 1 JV Member, Phase 1 JV
or Phase 1 Owner to enter into a transaction that would violate the provisions of the Phase 1 JV Agreement, as defined below, designed
to protect our status as a REIT.
Prior to the conversion
of the preferred equity interest of BRG Phase 1 into a common equity interest, as described below, if any, the manager of BR Phase
1 JV Member may be removed by BRG Phase 1 for “cause,” which includes the institution of a collection action by the
construction lender, fraud, gross negligence, breach of fiduciary duty, and any material breach of the BRG Phase 1 JV Agreement
not cured within sixty (60) days (or ninety (90) days if such cure cannot be completed in sixty (60) days, but the manager is diligently
pursuing such cure). If such manager is removed for cause, then BRG Phase 1 may appoint a replacement manager.
Following
the conversion of our preferred equity interest into a common equity interest, as described below, if any, SOIF II
shall automatically resign as manager of BR Phase 1 JV Member and BRG Phase 1 shall become the sole manager, removable only
by a majority of the equity interest and only for actions constituting fraud or gross negligence causing a material
diminution in value of the BR Phase 1 JV Member or its equity interest in Phase 1 JV.
Distributions, Liquidations
and Additional Capital Contributions
Under the BRG Phase
1 JV Agreement, the preferred equity interest of BRG Phase 1will earn and will be paid, on a current basis, a preferred return
at the annual rate of 15.0% times the outstanding amount of its capital contributions. BRG Phase 1 is not required to make any
additional capital contributions beyond its current capital commitment. However, if the BR Phase 1 JV Member makes an additional
capital call and SOIF II does not fully fund the same, then BRG Phase 1 may elect to fund such shortfall as an additional capital
contribution, in which case those contributions will accrue a preferred return at the rate of 20.0% per annum.
Distributions of
operating cash flow of the BR Phase 1 JV Member will be made monthly (as cash flow permits) (i) first, to pay BRG Phase 1 all
of its accrued but unpaid preferred returns on its outstanding capital contributions, (ii) next, to pay BRG Phase 1 all of
its accrued but unpaid preferred returns on its additional capital contributions, and (iii) finally, the remainder to SOIF
II; provided, however, that after the redemption date, discussed below, all operating cash flow will be paid to us until our
preferred equity interest is fully redeemed.
Upon a sale, refinancing
or other capital transaction regarding the Phase 1 Property, the net proceeds will be distributed by the BR Phase 1 JV Member:
(i) to repay any debts or obligations; (ii) to fund any reserves determined in good faith by the BR Phase 1 JV Member’s manager
and approved by BRG Phase 1; (iii) to BRG Phase 1 to repay its outstanding additional capital contributions and any outstanding
preferred returns on those additional capital contributions; (iv) to BRG Phase 1 to repay our outstanding capital contributions
and any outstanding preferred returns on those capital contributions; (v) to SOIF II in accordance with its positive capital account,
and (vi) the remainder to SOIF II.
Redemption
and Conversion
The BR Phase 1 JV
Member is required to redeem the preferred equity interest of BRG Phase 1 on the earlier of the date that is six (6) months following
the maturity of the construction loan for the Phase 1 Development, as defined below, (including any extensions thereof but excluding
refinancing), or any acceleration thereof. On the redemption date, the BR Phase 1 JV Member is required to pay BRG Phase 1 an amount
equal to its outstanding net capital contributions to the BR Phase 1 JV Member plus any accrued but unpaid Preferred Returns. If
the BR Phase 1 JV Member does not redeem the preferred equity interest of BRG Phase 1 in full on the required redemption date,
then any of the net capital contributions of BRG Phase 1 remaining outstanding will accrue a preferred return at the rate of 20.0%
per annum.
BRG Phase 1 has the
right, in its sole discretion, to convert its preferred equity interest in BR Phase 1 JV Member into a common equity interest for
a period of six (6) months from and after the date upon which 70% of the units in the Phase 1 Development, as defined below, have
been leased, or the Conversion Trigger Date. Upon conversion, we will receive a majority common equity interest, expected to be
between approximately 83.0% and 88.0% of the aggregate common equity interest in the BR Phase 1 JV Member, or the Expected Interest,
and the common equity percentage of SOIF II shall be adjusted accordingly. If the facts as of the Conversion Trigger Date are substantially
different from the capital investment assumptions resulting in our receipt of the Expected Interest, then we and SOIF II are required
to confer and determine in good faith a new common equity interest percentage relative to our conversion.
If BRG Phase 1 converts
to a common equity interest, (i) BRG Phase 1 will no longer have any rights to any preferred returns on, or of, capital contributions
to BR Phase 1 JV Member, (ii) BR Phase 1 JV Member will no longer be obligated to redeem BRG Phase 1, and (iii) BRG Phase 1 will
become the sole manager of the BR Phase 1 JV Member.
Phase 1 JV
BR Phase 1 JV Member
has made an initial investment of $4,201,900 to acquire a 100% equity interest in the Phase 1 JV, and ArchCo Phase 1 Member contributed
the PSA and certain intellectual property in exchange for the ArchCo Promote. BR Phase 1 JV Member and ArchCo Phase 1 Member have
entered into a joint venture operating agreement for the Phase 1 JV, dated November 20, 2015, or the Phase 1 JV Agreement.
The Phase 1 JV Agreement
contains terms, conditions, and indemnities that are customary and standard for joint ventures in the real estate industry.
Management and Certain
Decisions
BR Phase 1 JV Member
is manager of the Phase 1 JV. Under the Phase 1 JV Agreement, the manager has broad authority to act, however, the timing and amounts
distributable to the ArchCo Phase 1 Member shall not be adversely affected by, and no other material right of the ArchCo Phase
1 Member shall be effectively subordinated or otherwise diminished by reason of any determination by the manager to (i) accept
capital contributions on terms other than the terms that would be applicable if such additional capital contribution were made
by the BR Phase 1 JV Member pursuant to the terms of the Phase 1 JV Agreement or (ii) enter into any agreement regarding a direct
or indirect contribution of the Phase 1 Property, or a reorganization, merger, or other consolidation of the Phase 1 JV or a subsidiary,
or a sale of the Phase 1 Property to an entity in which the BR Phase 1 JV Member or an affiliate is a buyer.
Additional Capital
Contributions
The Phase 1 JV Agreement
provides that the Phase 1 JV shall accept additional capital contributions as and when the manager shall determine, consistent
with all applicable expenses under or relating to line items contained in the development budget, and any approved annual operating
budget or for non-discretionary expenses (such as real estate taxes, insurance or debt service), in each case established by the
manager in the good faith exercise of its sole discretion; provided, however, the ArchCo Phase 1 Member shall have no obligation
to make additional capital contributions. It is anticipated that the total equity required to develop the Phase 1 Property will
be approximately $18,570,000, which BRG Phase 1 and SOIF II are expected to contribute on a proportioned basis of 89.5% and 10.5%,
respectively.
Distributions
Pursuant to the provisions
of the Phase 1 JV Agreement, distributions are made generally as follows: (i) first, to BR Phase 1 JV Member until BR Phase 1 JV
Member has received an internal rate of return on its capital contribution equal to 15% and (ii) second, 12% to ArchCo Phase 1
Member and 88% to BR Phase 1 JV Member.
The Domain Development
The Phase 1 Property
consists of 10.1 acres in Garland, Texas, a part of the Dallas-Fort Worth metropolitan area. The Phase 2 Option and Phase 3 Option
provide the option for us to purchase two additional, contiguous tracts of land consisting of approximately 26.4 acres and lying
northwest of the Phase 1 Property, or the Phase 2 Property and the Phase 3 Property, respectively, and collectively with the Phase
1 Property, the Property. The Property is located just east of the cities of Richardson and Plano. Garland, Texas is one of the
more populous cities within the Dallas-Fort Worth metropolitan area. The Property is bounded by Bunker Hill Road to the north and
President George Bush Turnpike to the south, together providing road access to the Property.
We intend to use the
Phase 1 Property to develop a 301-unit, Class A, apartment community, or the Phase 1 Development. The estimated cost of the Phase
1 Development is $47,160,000, or $156,674 per unit. The Phase 1 Development is projected to be capitalized with a senior construction
loan in the amount of $33,100,000 representing 70% loan-to-cost.
The Phase 1 Development
will consist of three-story, wood-frame, garden-style buildings with surface parking, and both attached and detached garages. Amenities
within the community will include a resort-style swimming pool and spa, fitness center, and business center.
The Phase 2
Option provides us, through our indirect ownership of a subsidiary, or the Phase 2 Owner, with the opportunity to buy the Phase
2 Property at a cost of approximately $5,075,000. We intend to purchase and develop the Phase 2 Property into an apartment community,
or the Phase 2 Development. Subject to our ability to extend the closing date, closing on the Phase 2 Property must occur within
30 days after notice of our election to exercise the Phase 2 Option, but no later than (i) six months after Phase 1 Owner receives
a final certificate of occupancy for the Phase I Development or (ii) December 15, 2017, whichever occurs earlier.
The Phase 3 Option
provides us, through our indirect ownership of a subsidiary, or Phase 3 Owner, with the opportunity to buy the Phase 3 Property
at a cost of approximately $6,000,000. We intend to purchase and develop the Phase 3 Property into an apartment community, or the
Phase 3 Development. Subject to our ability to extend the closing date, closing on the Phase 3 Property must occur within 30 days
after notice of our election to exercise the Phase 3 Option, but no later than (i) six months after Phase 2 Owner receives a final
certificate of occupancy for the Phase 2 Development or (ii) December 15, 2019, whichever occurs earlier.
SIGNATURE
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
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BLUEROCK RESIDENTIAL
GROWTH REIT, INC. |
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Dated: November 27, 2015 |
By: |
/s/ Christopher J. Vohs |
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Christopher J. Vohs Chief Accounting
Officer |
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