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As filed with the Securities and Exchange Commission on November 14, 2011

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-11

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

 

 

Jones Lang LaSalle Income Property Trust, Inc.

(Exact Name of Registrant as Specified in Governing Instruments)

 

 

200 East Randolph Drive

Chicago, Illinois 60601

(312) 782-5800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

C. Allan Swaringen

Chief Executive Officer and President

200 East Randolph Drive

Chicago, Illinois 60601

(312) 782-5800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

With copies to:

Rosemarie A. Thurston

Jason W. Goode

Alston & Bird LLP

1201 West Peachtree Street

Atlanta, Georgia 30309

(404) 881-7000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Securities to be Registered   Proposed
Maximum
Aggregate Offering
Price(1)
 

Amount of

Registration Fee(2)

Primary Offering, Class A and Class M Common Stock, $0.01 par value per share

  $2,700,000,000   $309,420

Distribution Reinvestment Plan, Class A and Class M Common Stock, par value $0.01 per share

  $   300,000,000   $  34,380

Total Class A and Class M Common Stock, par value $0.01 per share

  $3,000,000,000   $343,800

 

 

(1) The registrant reserves the right to reallocate shares of common stock being offered between the primary offering and the distribution reinvestment plan.
(2) Calculated pursuant to Rule 457(o) of the Securities Act of 1933, as amended.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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EXPLANATORY NOTE

On November 14, 2011, we filed a preliminary proxy statement with the Securities and Exchange Commission, or the SEC, in connection with a special meeting of our stockholders, which we expect will be held on January 20, 2012, to approve certain amendments to our charter (as amended and restated, the “Amended Charter”) to (i) change all of our outstanding and undesignated shares of common stock into shares of Class E common stock and classify two new classes of common stock, Class A and Class M (the “Classification”), (ii) incorporate certain provisions in order to satisfy the requirements of the North American Securities Administrators Association’s Statement of Policy Regarding Real Estate Investment Trusts, as revised and adopted on May 7, 2007 (the “NASAA REIT Guidelines”), applicable to this offering, (iii) include a provision that requires that any person who makes a tender offer for our shares of stock, including, without limitation, a “mini-tender” offer, must comply with most of the provisions set forth in Regulation 14D of the Exchange Act of 1934, as amended, including without limitation, disclosure and notice requirements, that would be applicable if the tender offer is for more than five percent of our outstanding shares of common stock and (iv) further modernize our charter based on developments in REIT law and industry practice. Upon the effectiveness of the Classification, each share of our outstanding common stock, all of which are currently unclassified, will be changed into one share of Class E common stock. The Class E common stock is identical to the Class A and Class M common stock issued in this offering except that (i) shares of our Class E common stock will convert automatically into Class M common stock one year after the date the registration statement related to this offering is declared effective by the SEC, which we refer to as the offering commencement date, and (ii) no selling commissions, dealer manager fees or distribution fees are paid with respect to the shares of Class E common stock. For more information regarding our Amended Charter and the Classification, see our Preliminary Proxy Statement on Schedule 14A filed with the SEC on November 14, 2011 and incorporated by reference herein. See “Where You Can Find More Information.”

On or immediately prior to the offering commencement date, we will effectuate a stock dividend of our Class E common stock in order to achieve a net asset value, or NAV, per share for each of the Class A, Class M and Class E common stock of $10.00. The actual number of shares to be issued in the stock dividend will be based on the NAV per share of Class E common stock as determined after the close of business on the day prior to the offering commencement date and will have the effect of increasing the total number of our outstanding shares of common stock. The stock dividend will be effected on a pro rata basis with respect to all of our stockholders. Accordingly, it will not affect any stockholder’s proportionate ownership of our outstanding shares. We will issue fractional shares and will not pay cash in lieu of fractional shares in connection with the stock dividend.

The Amended Charter and the Classification have been approved by our board of directors but will not become effective until they are approved by our stockholders and the Amended Charter has been filed with and accepted for record by the State Department of Assessments and Taxation of Maryland, which we expect to occur prior to the commencement of this offering. In this preliminary prospectus, we describe our governing documents, including our capitalization, as we expect them to be at the commencement of this offering.


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The information in the prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion: Preliminary Prospectus dated November 14, 2011

Jones Lang LaSalle Income Property Trust, Inc.

Maximum Offering of $3,000,000,000

 

 

Jones Lang LaSalle Income Property Trust, Inc. is a real estate investment trust, or REIT, that owns and manages a diversified portfolio of high quality, income-producing office, retail, industrial and multifamily properties located primarily in the United States. It is expected that over time our real estate portfolio will be further diversified on a global basis and will be complemented by investments in real estate-related assets. We are managed by our advisor, LaSalle Investment Management, Inc., a subsidiary of our sponsor, Jones Lang LaSalle Incorporated (NYSE: JLL), a leading global real estate investment management and services firm. We are not a mutual fund and do not intend to register as an investment company under the Investment Company Act of 1940, as amended.

We are offering on a continuous basis up to $3,000,000,000 of shares of our common stock, consisting of up to $2,700,000,000 of shares in our primary offering and up to $300,000,000 of shares pursuant to our distribution reinvestment plan. We are offering to the public two classes of shares of our common stock, Class A shares and Class M shares. The share classes have different selling commissions and ongoing fees. We are offering to sell any combination of Class A and Class M shares with a dollar value up to the maximum offering amount. The per share purchase price will vary from day-to-day and will equal our NAV per share for each class of common stock, plus, for Class A shares only, applicable selling commissions. Subject to certain exceptions, you must initially invest at least $10,000 in shares of our common stock. This is a “best efforts” offering which means that LaSalle Investment Management Distributors, LLC, our affiliate and the dealer manager of this offering, will use its best efforts but is not required to sell any specific amount of shares in this offering.

We do not intend to list our shares of common stock for trading on an exchange or other trading market. In an effort to provide our stockholders with liquidity in respect of their investment in our shares, we have adopted a share repurchase plan whereby, after a one-year holding period, holders of our Class A and Class M shares may request on a daily basis that we repurchase all or any portion of their shares. Shares are not eligible for repurchase for the first year after purchase except for death or disability. The repurchase price per share for each class of common stock will be equal to our NAV per share for such class on the date of repurchase.

 

 

This investment involves a high degree of risk. You should purchase these securities only if you can afford the complete loss of your investment. See “Risk Factors” beginning on page 24 for risks to consider before buying our shares, including:

 

   

Since there is no public trading market for shares of our common stock, repurchase of shares by us after a one-year holding period will likely be the only way to dispose of your shares.

 

   

We limit the amount of shares that may be repurchased under our share repurchase plan to approximately 20% of our NAV per annum and, until our total NAV has reached $800 million, repurchases for shares of all classes in the aggregate may not exceed 25% of the gross proceeds received by us from the commencement of this offering through the last day of the prior calendar quarter. Because our assets will consist primarily of properties that generally cannot be readily liquidated, we may not have sufficient liquid resources to satisfy repurchase requests. Further, our board of directors may modify or suspend our share repurchase plan if it deems such action to be in the best interest of our stockholders. As a result, our shares have limited liquidity and at times may be illiquid.

 

   

The purchase and repurchase price for shares of our common stock will be based on the NAV of each class of common stock and will not be based on any public trading market. Because valuation of properties is inherently subjective, our NAV may not accurately reflect the actual price at which our assets could be liquidated on any given day.

 

   

We are dependent on our advisor to conduct our operations. We will pay substantial fees to our advisor which increases your risk of loss.

 

   

Our advisor will face conflicts of interest as a result of, among other things, time constraints, allocation of investment opportunities and the fact that the fees it will receive for services rendered to us will be based on our NAV which it is responsible for calculating.

 

   

The amount of distributions we may make is uncertain. We may pay distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings or offering proceeds.

 

   

If we fail to maintain our status as a REIT and no relief provisions apply, our NAV and cash available for distribution to our stockholders could materially decrease.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. In addition, the Attorney General of the State of New York has not passed upon or endorsed the merits of this offering. Any representation to the contrary is a criminal offense. The use of forecasts in this offering is prohibited. No one is permitted to make any oral or written predictions about the amount or certainty of any cash benefits or tax consequences which may result from an investment in our common stock.

 

     Per Share      Total
Maximum(1)
 

Gross offering proceeds(2)(3)

      $ 3,000,000,000   

Public offering price, Class A shares

   $ 10.36      

Public offering price, Class M shares

   $ 10.00      

Selling commissions(3)

   $ 0.36       $ 93,822,394   

Proceeds to us, before expenses

   $ 10.00       $ 2,906,177,606   

 

(1) Includes shares of common stock being offered under our distribution reinvestment plan, for which investors do not pay selling commissions. We reserve the right to reallocate the offering amount between the primary offering and the distribution reinvestment plan.
(2) The price per share for each class will equal the daily NAV per share for such class, plus, for Class A shares only, applicable selling commissions.
(3)

The table assumes that all shares sold in the primary offering are Class A shares. We will pay selling commissions on Class A shares of up to approximately 3.5% of the total price per share, which may be higher or lower due to rounding. Selling commissions may be reduced or eliminated for certain categories of purchasers. We will not pay selling commissions on Class M shares. We will pay our dealer manager (1) a dealer manager fee equal to 1/365th of 0.55% of our NAV for each share class for each day and (2) for Class A shares only, a distribution fee equal to 1/365th of 0.50% of our NAV per share for Class A shares for each day.

The date of this prospectus is                     , 2012


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HOW TO SUBSCRIBE

Investors who meet the suitability standards described herein may purchase shares of our common stock. See “Suitability Standards” below. Investors seeking to purchase shares of our common stock must proceed as follows:

 

   

Read this entire prospectus, including any documents incorporated by reference herein, and any appendices and supplements accompanying this prospectus.

 

   

Complete the execution copy of the subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, is included in this prospectus as Appendix A.

 

   

Deliver a check or submit a wire transfer for the full purchase price of the shares of our common stock being subscribed for along with the completed subscription agreement to the soliciting broker-dealer. Your check should be made payable, or wire transfer directed, to “Jones Lang LaSalle Income Property Trust, Inc.” After you have satisfied the applicable minimum purchase requirement of $10,000, additional purchases must be in increments of $1,000, except for purchases made pursuant to our distribution reinvestment plan.

 

   

By executing the subscription agreement and paying the total purchase price for the shares of our common stock subscribed for, each investor attests that he or she meets the suitability standards as stated in the subscription agreement and agrees to be bound by all of its terms.

Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. We are not permitted to accept a subscription for shares of our common stock until at least five business days after the date you receive this prospectus. See “Plan of Distribution” for additional information regarding subscriptions for shares of our common stock in this offering.

An approved trustee must process and forward to us subscriptions made through individual retirement accounts, or IRAs, Keogh plans and 401(k) plans. In the case of investments through IRAs, Keogh plans and 401(k) plans, we will send the confirmation and notice of our acceptance to the trustee.

 

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SUITABILITY STANDARDS

The shares of common stock we are offering are suitable only as a long-term investment for persons of adequate financial means who do not need liquidity of this investment within the first year. Because there is no public market for our shares, it may be difficult for you to sell your shares. On a limited basis, you may be able to have your shares repurchased through our share repurchase plan which, except for repurchases due to death or disability, is not available until one year after you purchase your shares, and may be modified or suspended by our board of directors.

 

In consideration of these factors, we require that a purchaser of shares of our common stock have either:

 

   

a minimum net worth of at least $250,000; or

 

   

a minimum gross annual income of at least $70,000 and a minimum net worth of at least $100,000.

For purposes of determining whether you satisfy the above standards, your net worth should be calculated excluding the value of your home, home furnishings and automobiles.

In addition to the minimum income and net worth standards above, an investor may not invest more than 10% of his or her liquid net worth in shares of our common stock and other similar programs, with liquid net worth being defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.

In the case of sales to fiduciary accounts (such as an individual retirement account, or IRA, Keogh plan or pension or profit sharing plan), these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the shares of our common stock or by the beneficiary of the account. With respect to participant-directed purchases under a 401(k) or other defined contribution plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, or the Code, the authorized plan fiduciary who has approved our shares of common stock as an available investment option under the plan is considered a “fiduciary account.”

Our sponsor, our dealer manager and each participating broker-dealer must make every reasonable effort to determine that the purchase of shares of our common stock is a suitable and appropriate investment for each investor. In making this determination, our sponsor and our dealer manager will rely upon information provided by the investor to the participating broker-dealer as well as the suitability assessment made by each participating broker-dealer. Each participating broker-dealer is required to maintain for six years records of the information used to determine that an investment in shares of our common stock is suitable and appropriate for a stockholder. Each participating broker-dealer will ascertain that each investor who purchases shares of common stock through such participating broker-dealer:

 

   

meets the minimum income and net worth standards set forth above for purchasing shares of our common stock;

 

   

can reasonably benefit from an investment in shares of our common stock based on the prospective investor’s overall investment objectives and portfolio structure;

 

   

is able to bear the economic risk of the investment based on the prospective investor’s overall financial situation; and

 

   

has an apparent understanding of the fundamental risks of the investment, the risk that the prospective investor may lose the entire investment, the lack of liquidity of the shares, the restrictions on transferability of the shares, and the tax consequences of the investment.

 

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By signing the subscription agreement required for purchases of our common stock, you represent and warrant to us that you have received a copy of this prospectus and that you meet the net worth and gross annual income requirements described above. These representations and warranties help us to ensure that you are fully informed about an investment in our common stock and all investors meet our suitability standards. In the event you or another stockholder or a regulatory authority attempt to hold us liable because stockholders did not receive copies of this prospectus or because we failed to adhere to each state’s suitability requirements, we will assert these representations and warranties made by you in any proceeding in which such potential liability is disputed in an attempt to avoid any such liability. By making these representations, you do not waive any rights that you may have under federal or state securities laws.

 

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ABOUT THIS PROSPECTUS

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

In this prospectus, the words “we,” “us” and “our” refer to Jones Lang LaSalle Income Property Trust, Inc. and our subsidiaries unless the context requires otherwise. The term “advisor” refers to LaSalle Investment Management, Inc., and the term “sponsor” or “Jones Lang LaSalle” refers to Jones Lang LaSalle Incorporated. The term “LaSalle” refers to LaSalle Investment Management, Inc. together with its international affiliates that collectively comprise Jones Lang LaSalle’s real estate investment and management business throughout the world, including the entities responsible for such activities in the United Kingdom, Continental Europe and the Asia-Pacific regions. The term “affiliates” when used with respect to Jones Lang LaSalle or LaSalle Investment Management, Inc. includes entities that are controlled or managed by Jones Lang LaSalle or LaSalle Investment Management, Inc., respectively.

This prospectus is part of a registration statement that we filed with the SEC, using a continuous offering process. Periodically, as we make material investments or have other material developments, we will provide a prospectus supplement that may add, update or change information contained in this prospectus. Any statement that we make in this prospectus will be modified or superseded by any inconsistent statement made by us in a subsequent prospectus supplement. The registration statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC and any prospectus supplements, together with the additional information described under “Incorporation By Reference.”

Following the date that the registration statement related to this offering is declared effective by the SEC, which we refer to as the offering commencement date, as soon as reasonably practicable after the end of each business day, we will (i) post our NAV per share for such day for each outstanding share class on our website, and (ii) make our NAV per share for each share class available on our toll-free, automated telephone line. In addition, as soon as reasonably practicable following the end of each month, we will file with the SEC a prospectus supplement disclosing our NAV per share for each share class for each business day in the preceding month. Our website will also contain this prospectus and any prospectus supplements that have not been superseded by a subsequent supplement. In order to avoid interruptions in the continuous offering of our shares of common stock, we will file an amendment to the registration statement with the SEC on or before such time as the most recent offering price per Class A and Class M share represents a 20% change from the per share price set forth in the registration statement filed with the SEC, as amended from time to time. There can be no assurance, however, that our continuous offering will not be suspended while the SEC reviews any such amendment, until it is declared effective, if at all.

IMPORTANT NOTE FOR BROKER-DEALERS: This prospectus will be supplemented each month with respect to the NAV per share for each share class for each business day in the preceding month, which we refer to as pricing supplements, and from time to time with respect to other information. All sales literature used in connection with this offering must be accompanied by (1) the current prospectus, (2) all prospectus supplements (other than pricing supplements) that have not been superseded by a subsequent supplement and (3) the most recent pricing supplement filed through the close of business on the business day immediately preceding delivery or, if delivered after the close of business, then through the close of business on the day such sales literature is delivered.

 

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TABLE OF CONTENTS

 

How to Subscribe

     i   

Suitability Standards

     ii   

About this Prospectus

     iv   

Cautionary Note Regarding Forward-Looking Statements

     1   

Questions and Answers About this Offering

     2   

Prospectus Summary

     10   

Risk Factors

     24   

Estimated Use of Proceeds

     55   

Investment Objectives and Strategy

     57   

Our Real Estate Investments

     69   

Management

     76   

Compensation

     93   

Conflicts of Interest

     96   

Net Asset Value Calculation and Valuation Guidelines

     101   

Selected Information Regarding Our Operations

     106   

Capitalization

     111   

Dilution

     112   

Share Repurchase Plan

     113   

Description of Capital Stock

     118   

Stock Ownership of Certain Beneficial Owners

     129   

Federal Income Tax Considerations

     131   

Certain ERISA Considerations

     153   

Plan of Distribution

     156   

Supplemental Sales Material

     164   

Legal Matters

     164   

Experts

     164   

Incorporation by Reference

     165   

Where You Can Find More Information

     165   

Appendix A: Subscription Agreement

     A-1   

Appendix B: Distribution Reinvestment Plan

     B-1   

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements included or incorporated by reference in this prospectus that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included or incorporated by reference herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

 

   

our ability to effectively deploy the proceeds raised in this offering;

 

   

changes in global economic conditions generally and the real estate and capital markets specifically;

 

   

business opportunities that may be presented to and pursued by us;

 

   

supply and demand for properties in our current and any proposed market areas;

 

   

tenant and mortgage loan delinquencies, defaults and tenant bankruptcies;

 

   

availability and creditworthiness of prospective tenants;

 

   

legislative or regulatory changes (including changes to the laws governing the taxation of REITs);

 

   

interest rates; and

 

   

changes to U.S. generally accepted accounting principles.

Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included or incorporated by reference in this prospectus. All forward-looking statements are made as of the date of this prospectus and the risk that actual results will differ materially from the expectations expressed in this prospectus will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this prospectus, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included or incorporated by reference in this prospectus, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this prospectus will be achieved.

 

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QUESTIONS AND ANSWERS ABOUT THIS OFFERING

Set forth below are some of the more frequently asked questions and accompanying answers related to our structure, our management, our business and an offering of this type.

 

Q: What is a real estate investment trust, or REIT?

 

A: In general, a REIT is a company that:

 

   

combines the capital of many investors to acquire or provide financing for real estate investments;

 

   

offers the benefits of a diversified real estate portfolio under professional management;

 

   

avoids “double taxation” (i.e., taxation at both the corporate and stockholder levels) that generally results from investments in a corporation because a REIT is generally not subject to federal corporate income taxes on the portion of its net income that it distributes to its stockholders; and

 

   

is required to pay distributions to stockholders of at least 90% of its taxable income for each year.

 

Q: What is Jones Lang LaSalle Income Property Trust, Inc.?

 

A: Jones Lang LaSalle Income Property Trust, Inc. is an externally managed REIT that owns and manages a diversified portfolio of office, retail, industrial and multifamily properties located primarily in the United States. We expect over time that our real estate portfolio will be further diversified on a global basis through the acquisition of additional properties outside of the United States and will be complemented by investments in real estate-related debt and securities. We were originally incorporated on May 28, 2004 under the laws of the State of Maryland as Excelsior LaSalle Property Fund, Inc., and we changed our legal name to Jones Lang LaSalle Income Property Trust, Inc. on November 14, 2011. We believe that we have operated in such a manner to qualify to be taxed as a REIT for federal income tax purposes commencing with the taxable year ended December 31, 2004, when we first elected REIT status. As of September 30, 2011, we owned (i) interests in 33 consolidated properties located in 11 states and one in Canada with an investment amount of approximately $899.7 million and (ii) interests in two unconsolidated properties located in two states with an investment amount of approximately $59.6 million.

 

Q: What is a perpetual-life REIT?

 

A: We use the term “perpetual-life REIT” to describe an investment vehicle of indefinite duration focused on real estate properties and other real estate-related assets, the shares of common stock of which are generally intended to be sold and repurchased by the issuer daily on a continuous basis. Public and private pension plan sponsors, endowments, foundations and other pension funds avail themselves of similarly structured, perpetual-life vehicles as one option for allocating a portion of their portfolio to direct investments in real estate. As a perpetual-life, publicly-offered REIT, we intend to offer a similar investment option to a broader universe of investors through this offering.

 

Q: Why should I consider an investment in real estate?

 

A:

Allocating a portion of your investment portfolio to real estate may provide you with a steady source of income, portfolio diversification, reduction of overall risk, a hedge against inflation and attractive risk-adjusted returns. For these reasons, individual and institutional investors have embraced real estate as a significant asset class for purposes of asset allocations within their investment portfolios. Survey data reported by The Pension Real Estate Association, or PREA, in 2011 indicates that investment in real estate by pension plans has been steadily increasing since 2000 with a significant percentage of pension plans having a target allocation to real estate of 10% or more of their overall investment portfolios. Furthermore, according to a report published in 2011 by the National Association of Real Estate Investment Trusts, or NAREIT, an optimized portfolio combining a blend of private direct real estate and publicly traded REITs produced better risk-adjusted returns than either private direct real estate or publicly traded REITs alone.

 

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  Blended portfolios resulted in positive average annual returns for all rolling five-year holding periods over the past 22 years, even during periods of dramatic property valuation declines (e.g. 2008, 2009, 2010). We believe that individual investors can benefit from adding a diversified real estate component to their investment portfolios. You and your financial advisor should determine whether investing in shares of our common stock as a means to gain exposure to private direct real estate would benefit your investment portfolio.

 

Q: How is an investment in shares of your common stock different from publicly traded REITs?

 

A: While investing in REITs whose shares are listed on a national securities exchange is one alternative for investing in real estate, shares of listed REITs generally fluctuate in value with both the real estate market and the stock market as a whole. We do not intend to list our shares for trading on a national securities exchange and, as such an investment in shares of our common stock generally differs from listed REITs because:

 

   

the daily NAV per share for each class of our common stock is based on the fair value of our assets less our outstanding liabilities, while shares of listed REITs are priced by the public trading market, which generally causes a listed REIT’s stock price to fluctuate based on factors such as supply (number of sellers) and demand (number of buyers) of shares, based on shifting preferences among various sectors of the global economy as well as other market forces;

 

   

most listed REITs focus on select property types or geographic markets, which means that in order to own a well-diversified property portfolio through owning shares of listed REITs, you would need to own shares of several listed REITs. Our investment strategy allows stockholders to obtain an allocation to a well-diversified portfolio of various commercial property types in different geographic markets, in addition to complementary debt and equity interests backed principally by real estate, which we refer to collectively as “real estate-related assets,” by owning our shares; and

 

   

industry benchmarks that track the value of direct investments in real estate properties have demonstrated a low correlation with the benchmarks for traditional asset classes, such as publicly traded stocks and bonds. Academic and empirical studies have shown that utilizing lower correlated assets in a diversified long-term investment portfolio can increase portfolio efficiency and may generate higher total returns while decreasing overall risk because the various asset classes may react to changing market conditions differently.

 

Q: How is an investment in shares of your stock different from traditional non-listed REITs?

 

A: As compared to the majority of non-listed REITs available to the public in the market today, an investment in shares of our stock generally differs from such REITs in the following ways:

 

   

shares of traditional non-listed REITs are typically not valued until 18 months after the cessation of their offering, whereas our shares will be valued on a daily basis. Changes in our daily NAV will reflect factors including, but not limited to, our portfolio income, interest expense, unrealized/realized gains (losses) on assets and accruals for fees, thereby enabling investors to invest in our shares at a price that reflects current market conditions and asset values. See “Net Asset Value Calculation and Valuation Guidelines”;

 

   

traditional non-listed REITs are generally illiquid, often for periods of eight years or more, with only very limited liquidity provided through share repurchase plans that have significant restrictions on the number of shares that can be repurchased each year and the sources of funding available for these repurchases. In contrast, after a one-year holding period, our stockholders may request, on a daily basis, that we repurchase all or any portion of their shares, subject to limitations that are much less restrictive than the repurchase plans of traditional non-listed REITs. See “Share Repurchase Plan”; and

 

   

most traditional non-listed REITs begin as blind pools with no owned or specified properties, whereas our company has an existing portfolio of assets which affords investors an opportunity to assess the nature and quality of our current assets before investing. See “Our Real Estate Investments.”

 

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Q: What is your investment strategy and what will you do with the proceeds raised in this offering?

 

A: The cornerstone of our investment strategy is to provide investors seeking a general commercial real estate allocation with a broadly diversified portfolio of income-producing real estate properties and real estate-related assets. We believe that a broadly diversified portfolio may potentially offer investors significant benefits for a given level of risk relative to a more concentrated portfolio. We intend to achieve our investment objectives by selecting investments across property types and geographic regions in an attempt to achieve portfolio stability, diversification and favorable risk-adjusted returns. To a lesser degree, we also intend to invest in real estate-related assets. See “Investment Objectives and Strategy—Global Target Markets.” We intend to use the net proceeds from this offering, after we pay the fees and expenses attributable to this offering or our operations, to (1) grow and further diversity our portfolio by making investments in accordance with our investment strategy and policies, (2) reduce borrowings and repay indebtedness incurred under various financing instruments and (3) fund repurchases of our shares under our share repurchase plan. See “Estimated Use of Proceeds.”

 

Q. Who is Jones Lang LaSalle Incorporated?

 

A. Jones Lang LaSalle Incorporated (NYSE: JLL), our sponsor, is a global real estate services firm specializing in commercial property management, leasing and investment management with a portfolio of approximately 1.8 billion square feet worldwide. Jones Lang LaSalle provides real estate and investment management services to leading corporate and institutional owners and occupiers of real estate around the world. As of September 30, 2011, Jones Lang LaSalle had over 200 corporate offices and operations in more than 1,000 locations in 70 countries and approximately 40,300 employees worldwide. Where appropriate, our advisor will leverage the global resources of Jones Lang LaSalle, its parent company and our sponsor, to serve our investment goals and objectives. We believe that our advisor’s access to the local market knowledge and expertise of Jones Lang LaSalle’s global real estate professionals is a key competitive strength for our global real estate investment and management activities. Our advisor hires our sponsor for property management, leasing, financing, capital markets and other services only when our advisor determines that our sponsor’s credentials in the property type and geographic market are superior to third party alternatives.

An affiliate of Jones Lang LaSalle has held an initial investment of $10 million in shares of our common stock since December 2004. In addition, as of the commencement of this offering, we expect that an affiliate of Jones Lang LaSalle will have invested an additional $50.2 million in our company through the purchase of additional shares of our common stock. See “Stock Ownership of Certain Beneficial Owners—Ownership by Our Sponsor and its Affiliates” for a description of the terms of these investments. As a result of this significant investment in us, Jones Lang LaSalle has a strong economic incentive to support our company, unlike other public, non-listed REITs whose sponsors have made a minimal investment and, consequently, are less aligned with the interests of their stockholders.

 

Q. Who is LaSalle Investment Management, Inc.?

 

A. LaSalle Investment Management, Inc., our advisor, is a registered investment advisor with the SEC. LaSalle was established and began managing real estate assets for institutional clients in 1980 and is one of the world’s largest managers of institutional capital invested in real estate and real estate-related assets. LaSalle specializes in providing comprehensive multi-disciplinary real estate investment services to a broad range of institutional and individual investors, including pension funds, foundations, endowments, corporations, insurance companies, sovereign wealth funds and money managers for high net worth individuals. LaSalle has over 30 years of real estate investment experience in public and private real estate markets in North America and Europe and more than a decade of experience in Asia Pacific. As of September 30, 2011, LaSalle managed approximately $47.9 billion of public and private real estate assets and had approximately 690 employees in 26 offices in 17 countries. Pursuant to the advisory agreement between us and our advisor, and as described under “Management—The Advisory Agreement,” our advisor is responsible for managing our affairs on a day-to-day basis and for identifying, making and managing investments on our behalf.

 

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We believe that access to LaSalle’s investment expertise, research capabilities and property acquisition sourcing and due diligence capabilities will enable us to successfully execute our investment strategy and objectives. LaSalle has substantial experience in acquiring, owning, managing, financing and operating commercial real estate across diverse property types around the world as well as significant experience in asset allocation across a diverse range of portfolio types. In sourcing and evaluating potential investment opportunities for our portfolio, our advisor will utilize the regional investment committees established by LaSalle in each region of the world in which it operates. These committees are comprised of senior members of its global management organization, each of whom has between 14 and 30 years of real estate investment experience. See “Management—Investment Committees.” Where appropriate, our advisor will leverage the worldwide resources of Jones Lang LaSalle, its parent company and our sponsor, to serve our investment goals and objectives. We believe that the local market knowledge and expertise of Jones Lang LaSalle’s international network of real estate professionals will provide us with a significant competitive advantage in executing our investment strategy.

 

Q: For whom is an investment in your shares recommended?

 

A: An investment in our shares may be appropriate for you if you:

 

   

meet the minimum suitability standards described above under “Suitability Standards;”

 

   

seek to allocate a portion of your investment portfolio to a direct, long-term investment in a broadly diversified portfolio of real estate and real estate-related assets;

 

   

seek to receive current income through our distribution payments;

 

   

wish to obtain the potential benefit of long-term capital appreciation; and

 

   

are able to hold your shares as a long-term investment and do not need liquidity from this investment within the first year.

We cannot assure you that an investment in our shares will allow you to realize any of these objectives. An investment in our shares is only intended for investors who do not need to be able to sell their shares quickly in the future since the opportunity to have your shares repurchased under our share repurchase plan may not always be available. See “Share Repurchase Plan.”

 

Q: What is the difference between the Class A and Class M shares of common stock being offered?

 

A: We are offering to the public two classes of shares of our common stock, Class A shares and Class M shares. The difference between the share classes relates to selling commissions and ongoing fees. No selling commissions or distribution fees are paid with respect to Class M shares. See “Description of Capital Stock” and “Plan of Distribution” for a discussion of the differences between our Class A and Class M shares.

Class A shares are available to the general public. Class M shares are available for purchase in this offering only (1) through fee-based programs, also known as wrap accounts, of investment dealers, (2) through participating broker-dealers that have alternative fee arrangements with their clients, (3) through certain registered investment advisors, (4) through bank trust departments or any other organization or person authorized to act in a fiduciary capacity for its clients or customers, (5) by endowments, foundations, pension funds and other institutional investors or (6) by our executive officers and directors and their immediate family members, as well as officers and employees of our advisor, our sponsor or other affiliates and their immediate family members, and, if approved by our board of directors, joint venture partners, consultants and other service providers. If you are eligible to purchase both classes of shares, you should consider, among other things, the amount of your investment, the length of time you intend to hold the shares, the selling commission and fees attributable to the Class A shares and whether you qualify for any selling commission discounts if you elect to purchase Class A shares. Before making your investment decision, please consult with your financial advisor regarding your account type and the classes of common stock you may be eligible to purchase.

 

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Q: What is the per share purchase price?

 

A: As of the offering commencement date, the initial purchase price for Class A and Class M shares will be $10.00 per share. Thereafter, the per share purchase price will vary from day-to-day and will equal our NAV per share for each class of common stock determined after the close of business each day, plus, for Class A shares only, applicable selling commissions. Each class of shares may have a different NAV per share because certain fees differ with respect to each class.

 

Q: What is the per share repurchase price?

 

A: The repurchase price per share on any business day will be equal to our NAV per share of the class of shares being repurchased. No shares may be repurchased within one year after the date of purchase, except for repurchases related to the death or disability of a stockholder. Class E shares are not eligible for repurchase but will automatically convert to Class M shares one year after the offering commencement date. After the Class E shares convert to Class M shares, they will be eligible for repurchase pursuant to our share repurchase plan, subject to the one year waiting period except upon the death or disability of a stockholder. See “Share Repurchase Plan.”

 

Q: How will you communicate the daily NAV per share?

 

A: As soon as reasonably practicable after the end of each business day, we will post on our website and make available on our toll-free, automated telephone line our NAV per share for such day for each outstanding share class. In addition, as soon as reasonably practicable following the end of each month, we will file with the SEC a prospectus supplement disclosing our NAV per share for each share class for each business day in the preceding month.

 

Q: Will I be charged selling commissions?

 

A: If you purchase Class A shares, yes, subject to exceptions for certain categories of purchasers. Investors in Class A shares will pay selling commissions of up to approximately 3.5% of the price per share. The actual selling commission expressed as a percentage of the total price per share (including selling commissions) may be higher or lower than 3.5% due to rounding. In addition, selling commissions may be lower for certain participating broker-dealers and may vary from one participating broker-dealer to another. Discounts are also available for certain volume purchases in the primary offering. See “Plan of Distribution.” Stockholders will not pay selling commissions on Class M shares or when purchasing shares of either class pursuant to our distribution reinvestment plan.

 

Q: What is the term or expected life of this offering?

 

A: We intend to conduct a continuous offering that will not have a predetermined duration, subject to continued compliance with the rules and regulations of the SEC and applicable state laws. We presently intend but are under no obligation to file a new registration statement to register additional Class A and Class M shares of common stock with the SEC prior to the end of each three-year period following the commencement of this offering described in Rule 415 under the Securities Act so that we may continuously offer shares of common stock over an unlimited time period. In certain states, the offering may continue for only one year pursuant to initial clearance by applicable state authorities, after which we will need to renew the offering for additional one-year periods (or longer, if permitted by the laws of each particular state).

 

Q: What is the recommended period over which I should plan to hold my shares in the company?

 

A: You should view your investment in our shares as long term with an intended holding period of not less than five to seven years. Given the generally illiquid nature of commercial real estate, we recommend an extended holding period in order to realize the performance benefits associated with this type of investment. Notwithstanding the foregoing, you and your financial advisor should determine the optimal holding period for your investment based on your individual objectives and overall portfolio.

 

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Q: Is there any minimum investment required?

 

A: The minimum initial investment in shares of our common stock is $10,000, and the minimum subsequent investment in our shares is $1,000 per transaction, although our board may elect to accept smaller investments at its discretion. The minimum subsequent investment amount does not apply to purchases made under our distribution reinvestment plan.

 

Q: If I buy shares, will I receive distributions and how often?

 

A: We intend to pay distributions to our stockholders on a quarterly basis. Any distributions we make will be at the discretion of our board of directors, considering factors such as our earnings, cash flow, capital needs and general financial condition and the requirements of Maryland law. Our board of directors’ discretion as to the payment of distributions will be directed, in substantial part, by its determination to cause us to comply with the REIT requirements. To maintain our qualification as a REIT, we generally are required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gains). See “Description of Capital Stock—Distributions,” “Selected Information Regarding Our Operations” and “Federal Income Tax Considerations.”

 

Q: Will the distributions I receive be taxable as ordinary income?

 

A: Distributions that you receive, including distributions that are reinvested pursuant to our distribution reinvestment plan, will generally be taxed as ordinary dividend income to the extent they are paid from our current or accumulated earnings and profits. Dividends received from REITs are generally not eligible to be taxed at the lower rates applicable to individuals for “qualified dividends” from taxable corporations.

We may designate a portion of distributions as capital gain dividends taxable at capital gain rates to the extent we recognize net capital gains from sales of assets. In addition, because depreciation expense reduces taxable income but does not reduce cash available for the payment of distributions, and because we initially expect such depreciation expense to exceed our non-deductible expenditures, a portion of your distributions may be considered return of capital for tax purposes. These amounts will not be subject to tax, but will instead reduce the tax basis of your investment. This, in effect, defers a portion of your tax until your shares are repurchased, you sell your shares or we are liquidated, at which time you generally will be taxed at capital gains rates. Because each investor’s tax position is different, we suggest you consult with your tax advisor. See “Federal Income Tax Considerations.”

 

Q: May I reinvest my cash distributions in additional shares?

 

A: Yes. We have adopted a distribution reinvestment plan whereby investors may elect to have their cash distributions automatically reinvested in additional shares of our common stock. If you participate in our distribution reinvestment plan, the cash distributions attributable to the class of shares that you own will be automatically invested in additional shares of the same class, except that holders of Class E shares who elect to participate in the distribution reinvestment plan will have cash otherwise distributable to them invested in Class M shares of common stock. The purchase price for shares purchased under our distribution reinvestment plan will be equal to our NAV per share of that share class on the date that the distribution is payable. Stockholders will not pay selling commissions when purchasing shares under our distribution reinvestment plan. See “Description of Capital Stock—Distribution Reinvestment Plan” for more information regarding reinvestment of distributions you may receive from us.

 

Q: Can I be certain that I will be able to liquidate my investment immediately at the time of my choosing?

 

A:

No. After an initial one-year holding period, stockholders may request on a daily basis that we repurchase all or any portion of their Class A or Class M shares pursuant to our share repurchase plan. However, our ability to fulfill repurchase requests is subject to a number of limitations. As a result, share repurchases may not be available at all times. Although our share repurchase plan will begin on the offering commencement

 

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  date, shares purchased in this offering are not eligible for repurchase for the first year after the date of purchase except upon death or disability of a stockholder. Our share repurchase plan limits repurchases during any calendar quarter to shares with an aggregate value (based on the repurchase price per share on the day the repurchase is effected) of 5% of the combined NAV of all classes of shares (including the Class E shares which are not eligible for repurchase) as of the last day of the previous calendar quarter, which means that in any 12-month period, we limit repurchases to approximately 20% of our total NAV. Moreover, until our total NAV has reached $800 million, repurchases for shares of all classes in the aggregate may not exceed 25% of the gross proceeds received by us from the commencement of this offering through the last day of the prior calendar quarter. The vast majority of our assets will consist of properties which cannot generally be liquidated quickly. Therefore, we may not always have sufficient liquid resources to satisfy repurchase requests. In order to provide liquidity for repurchases, we intend to generally maintain under normal circumstances an aggregate allocation to cash, cash equivalents and other short-term investments and certain types of real estate-related assets that can be liquidated more readily than properties of up to 15% of the overall value of our portfolio. Should repurchase requests, in the business judgment of our board of directors, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on stockholders whose shares are not repurchased, then our board of directors may modify or suspend our share repurchase plan if it deems such action to be in the best interest of our stockholders. See “Share Repurchase Plan—Repurchase Limitations.”

 

Q: Will I be notified of how my investment is doing?

 

A: Yes. We will provide you with periodic updates on the performance of your investment with us, including:

 

   

three quarterly financial reports;

 

   

an annual report;

 

   

in the case of certain U.S. stockholders, an annual IRS Form 1099-DIV or Form 1099-B, if required, and, in the case of non-U.S. stockholders, an annual IRS Form 1042-S; and

 

   

a quarterly statement providing material information regarding your participation in the distribution reinvestment plan and an annual statement providing tax information with respect to income earned on shares under the plan for the calendar year.

Depending on legal requirements, we will provide this information to you via one or more of the following methods:

 

   

U.S. mail or other courier;

 

   

facsimile;

 

   

electronic delivery; and

 

   

posting on our website, www.lasalle.com/JLLIPT.

In general, the above materials will be provided to you via U.S. mail unless you affirmatively elect to receive them via electronic delivery. If you do not elect to receive these materials via electronic delivery, we will mail to you only those materials which are required to be delivered to stockholders in hard copy form. We will not mail to you other reports we file with the SEC that are available to you on the SEC’s website at www.sec.gov.

 

Q: When will I get my detailed tax information?

 

A: In the case of certain U.S. stockholders, your Form 1099-B tax information, if required, will be mailed by January 31 of each year.

 

Q: Where can I find updated information regarding the company?

 

A:

You may find updated information on our website, www.lasalle.com/JLLIPT. Information contained on our website does not constitute part of this prospectus. In addition, we are subject to the reporting requirements

 

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  of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which requires us to file reports, proxy statements and other information with the SEC. See “Where You Can Find More Information” for a description of how you may read and copy the registration statement, the related exhibits and the reports, proxy statements and other information we file with the SEC.

 

Q: Who can help answer my questions?

 

A: If you have further questions about this offering or if you would like additional copies of this prospectus, you should contact your registered selling representative or our transfer agent at:

DST Systems, Inc.

333 W. 11th Street

Kansas City, MO 64105

Phone: [                    ]

Fax: [                    ]

 

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PROSPECTUS SUMMARY

This prospectus summary highlights certain information contained elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that is important to you. To fully understand this offering, you should carefully read this entire prospectus, including the “Risk Factors” section.

Jones Lang LaSalle Income Property Trust, Inc.

We own and manage a diversified portfolio of high quality, income-producing commercial real estate properties located primarily in the United States. We expect over time that our portfolio will be broadly diversified through the acquisition of additional properties outside of the United States. Although we intend to continue to invest primarily in real estate properties, we also intend to acquire debt and equity interests backed principally by real estate, which we refer to as real estate-related assets. As of September 30, 2011, we owned (i) interests in 33 consolidated properties located in 11 states and one in Canada with an investment amount of approximately $899.7 million and comprising approximately 6.2 million net rentable square feet and (ii) interests in two unconsolidated properties located in two states with an investment amount of approximately $59.6 million and comprising approximately 881,000 net rentable square feet.

From our inception to September 30, 2011, we raised an aggregate of approximately $501.8 million in gross proceeds through private offerings of shares of our common stock. In addition to these private offerings, we expect that as of the commencement of this offering, affiliates of our sponsor, Jones Lang LaSalle, will have invested up to an aggregate of $60.2 million in our company through purchases of shares of our common stock prior to the commencement of this offering. As of November 14, 2011, we had 4,147,140 shares of our common stock outstanding held by a total of 1,765 stockholders. All of these outstanding shares are classified as Class E shares in order to distinguish them from the Class A and Class M shares offered in this offering. The Class E shares will convert automatically into Class M shares one year after the offering commencement date.

We intend to continue to operate in a manner to qualify as a REIT for federal income tax purposes. Our office is located at 200 East Randolph Drive, Chicago, Illinois 60601 and our main telephone number is (312) 782-5800.

Summary Risk Factors

An investment in shares of our common stock involves significant risks and is intended only for investors with a long-term investment horizon and who do not require immediate liquidity or guaranteed income. Some of the more significant risks relating to an investment in shares of our common stock include those listed below.

 

   

Because we do not expect that there will ever be a public trading market for shares of our common stock, repurchase of shares by us will likely be the only way for you to dispose of your shares promptly. However, shares purchased in this offering are not eligible for repurchase for the first year after purchase except upon death or disability of a stockholder. In addition, our share repurchase plan limits repurchases each calendar quarter to an amount of shares of all classes with an aggregate value of 5% of the combined NAV of all classes of shares (including the Class E shares which are not eligible for repurchase) as of the last day of the previous calendar quarter, which means that in any 12-month period, we limit repurchases to approximately 20% of our total NAV. Moreover, until our total NAV has reached $800 million, repurchases for shares of all classes in the aggregate may not exceed 25% of the gross proceeds received by us from the commencement of this offering through the last day of the prior calendar quarter. The vast majority of our assets will consist of properties that cannot generally be liquidated quickly. Therefore, we may not have sufficient resources to satisfy repurchase requests. Our board of directors has the right to modify or suspend our share repurchase plan if it deems such action to be in the best interest of our stockholders. As a result, our shares should be considered as having limited liquidity and at times may be illiquid.

 

 

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The purchase and repurchase price for shares of our common stock will not be based on any established trading price. Your accepted subscription will be executed at a price equal to our NAV per share for the class of shares being purchased next determined after your subscription is received in proper form and processed. As a result, you will not know the purchase price per share at which your subscription will be executed at the time you submit your subscription and it could be higher than our NAV per share on the date you submitted your subscription. In addition, because stockholders will not know the repurchase price that will apply at the time repurchase requests are submitted, the repurchase price per share at which your repurchase is executed could be lower than our NAV per share on the date you submitted your repurchase request.

 

   

We are dependent upon our advisor to select our investments and conduct our operations. We will pay substantial fees to our advisor for these services. Because the agreement governing these services was not negotiated on an arm’s-length basis, these fees may exceed what we would pay to an independent third party.

 

   

Our advisor will face conflicts of interest as a result of, among other things, time constraints, allocation of investment opportunities and the fact that the fees it will receive for services rendered to us will be based on our NAV, which it is responsible for calculating.

 

   

Because valuation of our properties by Real Estate Research Corporation, our independent valuation advisor, is inherently subjective, our daily NAV may not accurately reflect the actual price at which these assets could be liquidated on any given day. Further, rapidly changing market conditions or material events may not be fully reflected in our daily NAV. The resulting potential disparity in our NAV may inure to the benefit of stockholders whose shares are repurchased or new purchasers of our common stock, depending on whether our published NAV per share for such class is overstated or understated.

 

   

The amount of distributions we may pay, if any, is uncertain. We may pay distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings or offering proceeds.

 

   

Our investments in properties may continue to be affected by the unfavorable economic conditions, which could further decrease the value of those assets and reduce our NAV.

 

   

Our use of leverage increases the risk of your investment and could hinder our ability to pay distributions to our stockholders.

 

   

You will not have the opportunity to evaluate future investments we will make with the proceeds raised from this offering prior to purchasing shares of our common stock.

 

   

If we fail to maintain our status as a REIT, our NAV and cash available for distribution to our stockholders could materially decrease.

Class A and Class M Shares of Common Stock

We are offering to the public two classes of shares of our common stock: Class A shares and Class M shares. The table below summarizes the fees payable to our dealer manager with respect to the Class A and Class M shares and does not include the advisory fee payable to our advisor described below. The selling commission is a percentage of the total price per Class A share, and the dealer manager and distribution fees accrue daily in an amount equal to 1/365th of the percentage of our NAV for such day set forth below on a continuous basis.

 

     Class A     Class M  

Selling Commission

     3.50     None   

Dealer Manager Fee

     0.55     0.55%   

Distribution Fee

     0.50     None   

 

 

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As a result of the different ongoing fees, each share class (including our Class E shares which are not being offered or sold in this offering) will have different NAV per share amounts. This will result in different amounts of distributions being paid with respect to each class of shares.

Class E Shares of Common Stock and Stock Dividend

The Class E shares are identical to the Class A and Class M shares sold in this offering except that (i) Class E shares will convert automatically into Class M shares one year after the offering commencement date and (ii) no selling commissions, dealer manager fees or distribution fees are paid with respect to the Class E shares. No Class E shares will be issued in this offering. The Class E shares are not eligible for repurchase pursuant to our share repurchase plan until they have converted into Class M shares and satisfied the one-year holding period applicable to all repurchases other than in connection with death or disability of a stockholder.

On or immediately prior to the offering commencement date, we will effectuate a stock dividend for each of our Class E shares in order to achieve an NAV per share for each of the Class A, Class M and Class E shares of $10.00. The actual number of shares to be issued in the stock dividend will be based on the NAV per Class E share as determined after the close of business on the day prior to the offering commencement date and will have the effect of increasing the total number of our outstanding shares of common stock. Accordingly, it will not affect any stockholder’s proportionate ownership of our outstanding shares.

Investment Objectives

Our primary investment objectives are to:

 

   

generate an attractive level of current income for distribution to our stockholders;

 

   

preserve and protect our stockholders’ capital investments;

 

   

achieve appreciation of our NAV over time; and

 

   

enable stockholders to utilize real estate as an asset class in diversified, long-term investment portfolios.

Investment Strategy

The cornerstone of our investment strategy is to provide investors seeking a general commercial real estate allocation with a broadly diversified portfolio of income-producing real estate properties and real estate-related assets. We believe that a broadly diversified portfolio may potentially offer investors significant benefits for a given level of risk relative to a more concentrated portfolio. We intend to achieve our investment objectives by selecting investments across property types and geographic regions in an attempt to achieve portfolio stability, diversification and favorable risk-adjusted returns. To a lesser degree, we also intend to invest in debt and equity interests backed principally by real estate, which we refer to collectively as real estate-related assets. Additionally, we believe that an allocation to international investments that meet our investment policies and objectives will contribute meaningfully to the diversification of our portfolio and the potential for achieving attractive returns. Since most real estate markets are cyclical in nature, we believe that a broadly diversified investment strategy, including exposure to investments outside the United States, will allow us to more effectively deploy capital into property types and geographies where the underlying investment fundamentals are relatively strong and away from those sectors where such fundamentals are relatively weak. We will employ a research-based investment philosophy focused on building a portfolio of commercial properties and real estate-related assets that we believe have the potential to out-perform the market averages over an extended holding period.

Our board of directors has adopted investment guidelines that will be implemented by our advisor. Our directors will formally review our investment guidelines on an annual basis and our portfolio on a quarterly basis or, in each case, more often as they deem appropriate. Changes to our investment guidelines must be approved by

 

 

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our board of directors. The investment guidelines delegate to our advisor the authority to execute (1) property acquisitions and dispositions and (2) investments in other real estate-related assets, in each case so long as such investments are consistent with the investment guidelines. Our board of directors will at all times have ultimate oversight over our investments and may change from time to time the scope of authority delegated to our advisor with respect to acquisition, disposition and investment transactions. See “Investment Objectives and Strategy” for more details regarding our investment strategy and guidelines.

Leverage

We expect to maintain a targeted leverage ratio of between approximately 30% and 50% of the gross value of our assets, inclusive of property and entity level debt from and after the date our aggregate NAV has increased to $800 million, which we refer to as the “ramp up period.” During the ramp up period, we intend to use modest amounts of leverage, if any, to finance our new acquisitions in order to reduce our overall portfolio leverage. Our board of directors may from time to time modify our borrowing policy in light of then-current economic conditions, the relative costs of debt and equity capital, the fair values of our properties, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. Our charter restricts the amount of indebtedness that we may incur to 300% of our net assets, which approximates 75% of the cost of our investments, but does not restrict the amount of indebtedness we may incur with respect to any single investment. Notwithstanding the foregoing, our aggregate indebtedness may exceed the limit set forth in our charter, but only if such excess is approved by a majority of our board, including a majority of our independent directors. As of September 30, 2011, our indebtedness expressed as a percentage of our net assets was 132%, or approximately 61% of the cost of our investments, which is in compliance with our charter. See “Investment Objectives and Strategy—Borrowing Policies” for more details regarding our borrowing policies.

Fees and Expenses

We will pay our advisor and our dealer manager the fees and expense reimbursements described below in connection with performing services for us. We do not intend to pay acquisition, disposition or financing fees to our advisor in connection with the purchase or sale of our investments, although our charter authorizes us to do so.

 

Type of Compensation

  

Determination of Amount

  

Estimated Amount

Organization and Offering Stage
Selling Commissions   

We will pay our dealer manager selling commissions of up to approximately 3.5% of the total price per Class A share (NAV per share plus selling commission). The actual selling commission expressed as a percentage of the total price per Class A share may be higher or lower than 3.5% due to rounding. All or a portion of the selling commissions may be waived at the discretion of our dealer manager, reallowed to participating broker-dealers or reduced for volume purchases.

 

We will not pay selling commissions with respect to purchases of Class M shares or shares of either class sold pursuant to our distribution reinvestment plan.

   The actual amount will depend on the number of Class A shares sold, the NAV per Class A share and the type of accounts that purchase Class A shares. Aggregate selling commissions will equal $93,822,394, assuming that we sell the maximum offering, all shares sold are Class A shares, the maximum selling commission is paid for each primary offering share, our NAV per Class A share remains $10.00 and there is no reallocation of shares between our primary offering and our distribution reinvestment plan.

 

 

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Type of Compensation

  

Determination of Amount

  

Estimated Amount

Dealer Manager Fee   

We will pay our dealer manager a dealer manager fee that accrues daily in an amount equal to up to 1/365th of 0.55% of our NAV for each of our Class A and Class M shares for such day on a continuous basis from year to year. We will cease paying the dealer manager fee with respect to shares sold in this offering on the date at which total underwriting compensation paid with respect to such shares equals 10% of the gross proceeds from the primary portion of this offering. Our dealer manager may reallow a portion of the dealer manager fee to participating broker-dealers that meet certain thresholds of our shares under management and certain other metrics. The dealer manager fee will be payable in arrears on a quarterly basis. Because the dealer manager fee is calculated based on our NAV, it reduces the NAV with respect to all Class A and Class M shares of our common stock, including Class A and Class M shares issued under our distribution reinvestment plan.

 

We will not pay a dealer manager fee with respect to our Class E shares.

   Actual amounts depend upon our daily NAV and when Class A and Class M shares are purchased. The dealer manager fee will equal approximately $16,500,000 per annum, assuming that we sell the maximum offering and our NAV per share remains $10.00 for both classes of shares.
Distribution Fee   

We will pay our dealer manager a distribution fee with respect to our Class A shares only that accrues daily in an amount equal to 1/365th of 0.50% of the amount of our NAV for the Class A shares for such day. We will cease paying the distribution fee with respect to shares sold in this offering on the date at which total underwriting compensation paid with respect to such shares equals 10% of the gross proceeds from the primary portion of this offering. The distribution fee will be payable in arrears on a quarterly basis. Our dealer manager may reallow the distribution fee to participating broker-dealers for services that such broker-dealers perform in connection with the distribution of the Class A shares. Because the distribution fee is calculated based on our NAV for Class A shares, it reduces the NAV with respect to all Class A shares, including Class A shares issued under our distribution reinvestment plan.

 

We will not pay a distribution fee with respect to Class M shares or Class E shares.

  

Actual amounts depend upon our daily NAV, the number of Class A shares purchased and when shares are purchased. The distribution fee will equal approximately $14,478,764 per annum, assuming that we sell the maximum offering, all shares sold are Class A shares, our NAV per Class A share remains $10.00 and all shares are purchased on the offering commencement date.

 

 

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Type of Compensation

  

Determination of Amount

  

Estimated Amount

Organization and Offering Expense Reimbursement    Our advisor and our dealer manager have agreed to fund our organization and offering expenses through the offering commencement date, at which time we will reimburse our advisor and our dealer manager for such expenses over 36 months. Thereafter, we will pay directly, or reimburse our advisor and our dealer manager if they pay on our behalf, any organization and offering expenses (other than selling commissions, the dealer manager fee and distribution fees) as and when incurred. After the termination of the primary offering and again after termination of the offering under our distribution reinvestment plan, our advisor has agreed to reimburse us to the extent that the organization and offering expenses that we incur exceed 15% of our gross proceeds from the applicable offering.    Actual amounts depend upon the amount raised in this offering. We estimate our organization and offering expenses to be approximately $13,159,990 if we sell the maximum offering.
Operational Stage
Operating Expense Reimbursement    We will reimburse our advisor for out-of-pocket expenses in connection with providing services to us, including our allocable share of our advisor’s overhead, such as rent, utilities and personnel costs for individuals who provide these services; provided, that our advisor does not currently intend to seek reimbursement for any portion of the compensation payable to our executive officers. If our advisor subsequently determines to seek reimbursement for personnel costs of individuals who serve as our executive officers, we will disclose any such reimbursements in our next quarterly or annual reports filed pursuant to SEC requirements.    Actual amounts are dependent upon actual expenses incurred and, therefore, cannot be determined at this time.
Advisory Fee    We will pay our advisor an advisory fee equal to (1) a fixed component that accrues daily in an amount equal to 1/365th of 1.25% of our NAV for each class (Class A, Class M and Class E shares) for such day, which will be payable monthly in arrears and (2) a performance component calculated for each class (Class A, Class M and Class E shares) on the basis of the total return on that class in any calendar year, such that for any year in which our total return per share for such class exceeds 7% per annum, our advisor will receive 10% of the excess total return allocable to that class. In the event our NAV per share for any class of our common stock decreases below $10.00, the performance component will not be earned on any increase in NAV per share up to $10.00 with respect to that class. See “Management—The Advisory Agreement—Advisory Fee and Expense Reimbursements.”    Actual amounts depend upon our daily NAV per share and future distributions and, therefore, cannot be calculated at this time.

 

 

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Conflicts of Interest

Our advisor and its affiliates, officers and directors will experience conflicts of interests in connection with the management of our business, including those listed below.

 

   

Our advisor must determine which investment opportunities are allocated to us and the other real estate funds and separate accounts advised or managed by our advisor or one of its affiliates, some of which may have investment objectives and strategies comparable to ours.

 

   

The managers, directors, officers and other personnel of our advisor must allocate their time between advising us and managing other real estate programs or business activities in which they may be involved.

 

   

The compensation payable by us to our advisor and our dealer manager may not be on terms that would result from arm’s-length negotiations between unaffiliated parties.

 

   

The advisory fee we pay to our advisor is based upon our NAV, which will be calculated by our advisor. Moreover, the calculation of NAV will be based in part on subjective judgments of our advisor, including estimates of fair value of particular assets, and therefore may not correspond to realizable value upon a sale of those assets.

 

   

Our dealer manager is an affiliate of our advisor, and the conflict of interest associated with calculating our NAV described above will also relate to the dealer manager fee and distribution fee we pay which is also based on our NAV. In addition, you do not have the benefit of an independent third-party due diligence review of this offering which would be available if we and the dealer manager were unaffiliated.

 

   

Our sponsor provides property management, leasing and other services to property owners, and currently provides certain of these services to us with respect to a portion of our properties, and we may engage our sponsor to perform additional property or construction management, leasing and other services for us. The fees, commissions and expense reimbursements paid to our sponsor in connection with these services are not determined with the benefit of arm’s length negotiations of the type normally conducted between unrelated parties.

Our charter contains provisions, and our advisor has adopted policies and procedures, that are designed to eliminate or mitigate many of the various conflicts of interest, including a prohibition on acquiring investments from, or selling investments to, any affiliate of our advisor. See “Conflicts of Interest.”

Our Board of Directors

We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. Our board of directors has ultimate responsibility for our operations, governance, financial controls, compliance and disclosure. Our directors are elected annually by our stockholders. As of the offering commencement date, we will have seven directors, four of whom will be independent of us, our advisor and its affiliates. The names and biographical information of our directors are contained under “Management—Directors and Executive Officers.”

Our Sponsor

Jones Lang LaSalle (NYSE: JLL), our sponsor, is a global real estate services firm specializing in commercial property management, leasing and investment management with a portfolio of over 1.8 billion square feet worldwide. Jones Lang LaSalle provides real estate and investment management services to leading corporate and institutional owners and occupiers of real estate around the world. As of September 30, 2011, Jones Lang LaSalle had over 200 corporate offices and operations in more than 1,000 locations in 70 countries

 

 

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and approximately 40,300 employees worldwide. Where appropriate, our advisor will leverage the global resources of Jones Lang LaSalle, its parent company and our sponsor, to serve our investment goals and objectives.

Our Advisor

LaSalle Investment Management, Inc., our advisor, manages all of our day-to-day operations. Our advisor is responsible, subject to oversight by our board of directors, for sourcing our investment opportunities and for making decisions related to the acquisition, management and disposition of our assets, in accordance with our investment objectives, guidelines, policies and limitations. Our advisor has contractual and fiduciary responsibilities to us and our stockholders pursuant to an advisory agreement. For so long as the advisory agreement is in effect, our advisor has the right to nominate, subject to the approval of such nomination by our board of directors, three affiliated directors to the slate of directors to be voted on by the stockholders at our annual meeting of stockholders; provided, however, that such number of director nominees shall be reduced as necessary by a number that will result in a majority of directors being independent directors. Our board of directors must also consult with our advisor in connection with (i) its selection of each independent director for nomination to the slate of directors to be voted on at the annual meeting of stockholders, and (ii) filling any vacancies created by the removal, resignation, retirement or death of any director. See “Management.”

Our Dealer Manager

LaSalle Investment Management Distributors, LLC, our dealer manager, is distributing shares of our common stock in this offering on a best efforts basis. Our dealer manager is a recently formed entity that is a member of the Financial Industry Regulatory Authority, Inc., or FINRA, and is an affiliate of our advisor. Our dealer manager will coordinate our distribution effort and manage our relationships with participating broker-dealers and provide assistance in connection with compliance matters relating to marketing the offering.

Stock Ownership by Our Sponsor and its Affiliates

An affiliate of Jones Lang LaSalle has held an initial investment of $10 million in shares of our common stock since December 2004 and purchased an additional $200,000 in shares of our common stock in November 2011. We expect that as of the commencement of this offering, an affiliate of Jones Lang LaSalle will have purchased an additional $50 million in Class E shares of our common stock. The $50 million in shares to be issued in connection with this additional investment in our Class E shares will generally not be eligible for repurchase pursuant to our share repurchase plan until the fifth anniversary of the purchase date and will be subject to certain limitations as to the amount eligible for repurchase until the seventh anniversary of the purchase date, provided that we will be obligated to repurchase the shares immediately upon request of the holder if an affiliate of our sponsor no longer serves as our advisor. See “Stock Ownership of Certain Beneficial Owners—Ownership by Our Sponsor and its Affiliates.”

 

 

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Our Structure

The following chart shows our current ownership structure and our relationship with our advisor and our dealer manager as of the commencement of this offering.

LOGO

 

(1) Following the conversion of our Class E shares to Class M shares, no Class E shares will be issued and outstanding.
(2) Includes entities controlled or managed by Jones Lang LaSalle.

Share Repurchase Plan

We expect that there will be no regular secondary trading market for shares of our common stock. While you should view your investment as long term with limited liquidity, we have adopted a share repurchase plan, whereby on a daily basis holders of Class A or Class M shares may request that we repurchase all or any portion of their shares. Although our share repurchase plan will begin on the offering commencement date, no shares may be repurchased within one year after the date of purchase, except for repurchases related to the death or disability of a stockholder. Our share repurchase plan limits repurchases during any calendar quarter to shares with an aggregate value (based on the repurchase price per share on the day the repurchase is effected) of 5% of the combined NAV of all classes of shares (including the Class E shares which are not eligible for repurchase) as of the last day of the previous calendar quarter, which means that in any 12-month period, we limit repurchases to approximately 20% of our total NAV. Moreover, until our total NAV has reached $800 million, repurchases for shares of all classes in the aggregate may not exceed 25% of the gross proceeds received by us from the commencement of this offering through the last day of the prior calendar quarter. As a result, the availability of repurchases prior to the conclusion of our ramp-up period will be dependent upon, among other things, the

 

 

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success of this offering. Class E shares are not eligible for repurchase until they have converted to Class M shares one year following the offering commencement date and satisfied the one-year holding period applicable for repurchases other than for death or disability of a stockholder. Due to the potential demand for liquidity from Class E holders, there may be less liquid resources available to fund repurchase requests from holders of Class A and Class M shares sold in this offering after the Class E shares have converted to Class M shares and become eligible for repurchase.

We may not always be able to repurchase your shares under the share repurchase plan. If a repurchase request is made and accepted, the repurchase price per share will be equal to our NAV per share on the date of repurchase of the class of shares being repurchased. The vast majority of our assets will consist of properties which cannot generally be liquidated quickly. Therefore, we may not always have sufficient liquid resources to satisfy repurchase requests. We intend to generally maintain under normal circumstances an aggregate allocation to cash, cash equivalents and other short-term investments and certain types of real estate-related assets that can be liquidated more readily than properties of up to 15% of the overall value of our portfolio. Should repurchase requests, in the business judgment of our board of directors, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on stockholders whose shares are not repurchased, then our board of directors may modify or suspend our share repurchase plan if it deems such action to be in the best interest of our stockholders. Our board of directors will assess the overall level of liquidity available in our portfolio and the need for available funds prior to taking any action that will result in limiting our repurchases. See “Share Repurchase Plan—Repurchase Limitations.”

Distributions

We currently are, and expect that in the future we will continue to be, organized and operated in a manner intended to qualify as a REIT for U.S. federal income tax purposes. We first elected REIT status for our taxable year ended December 31, 2004. In order to qualify as a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders. For these purposes, REIT taxable income is determined without regard to the dividends-paid deduction and excludes net capital gain. Further, REIT taxable income does not necessarily equal net income as calculated in accordance with generally accepted accounting principles in the United States, or GAAP.

Commencing with the first calendar quarter after the offering commencement date, we intend to accrue and pay distributions on a quarterly basis. However, we reserve the right to adjust the periods during which distributions accrue and are paid. We expect that our board of directors will authorize a quarterly distribution of a certain dollar amount per share of common stock for each quarter. For purposes of calculating our NAV to account for any declared distributions, we will accrue as our liability on the day after the record date (the distribution adjustment date) the amount of the declared distributions. Distributions will be payable only to stockholders of record on the business day immediately preceding the distribution adjustment date. See “Share Repurchase Plan.”

Our policy generally will be to pay distributions from cash flow from operations. However, we are authorized to fund distributions from any other source, including, without limitation, the proceeds of this offering, borrowings or the sale of properties or other investments. Distributions may constitute a return of capital. We have not established a minimum distribution level. The amount of any distributions will be determined by our board of directors and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board.

On September 14, 2011, our board of directors authorized a distribution of $0.55 per share to stockholders of record as of September 30, 2011, payable on November 7, 2011. Although we historically have paid regular quarterly distributions beginning in the first full quarterly period following the initial closing of our first offering on December 23, 2004 through March 31, 2009, we did not pay distributions for the nine quarterly periods prior

 

 

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to September 30, 2011 in order to conserve our liquid resources, strengthen our balance sheet and protect the value of our investments during the economic downturn. See “Selected Information Regarding Our Operations—Distribution Information.” Any future distributions will be made at the discretion of our board of directors and will depend on our earnings, financial condition, maintenance of our REIT status and such other factors as our board of directors may deem relevant from time to time.

Distribution Reinvestment Plan

Stockholders may elect to participate in our distribution reinvestment plan in order to have their cash distributions reinvested in additional shares of our common stock. If you participate in our distribution reinvestment plan, the cash distributions attributable to the class of shares that you own will be automatically invested in additional shares of the same class, except that holders of Class E shares who elect to participate in the distribution reinvestment plan will have cash otherwise distributable to them reinvested in Class M shares. Shares are offered pursuant to our distribution reinvestment plan at the NAV per share applicable to that class, calculated as of the distribution date. Stockholders will not pay selling commissions when purchasing shares pursuant to the distribution reinvestment plan. For the complete terms of the distribution reinvestment plan, see Appendix B to this prospectus.

 

 

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Our Real Estate Properties

The following tables provide information regarding our consolidated and unconsolidated real estate properties as of September 30, 2011. All properties are 100% owned unless otherwise specified.

Consolidated Properties

 

Property Name (1)

  Location   Net
Rentable
Square Feet
    Leased as of
September 30,
2011
    Original
Investment
Amount
(in thousands)
    % of Minimum Base
Rent as of

September 30, 2011 (2)
 

Monument IV at Worldgate

  Herndon, VA     228,000        100   $ 59,600        6.5

CHW Medical Office Portfolio:

         

300 Old River Road

  Bakersfield, CA     37,000        100        6,800        0.8   

500 Old River Road

  Bakersfield, CA     30,000        80        5,600        0.6   

500 West Thomas Road

  Phoenix, AZ     169,000        86        32,000        2.8   

1500 South Central Ave

  Glendale, CA     37,000        71        7,900        0.8   

14600 Sherman Way

  Van Nuys, CA     50,000        76        9,100        1.1   

14624 Sherman Way

  Van Nuys, CA     53,000        72        10,400        0.8   

18350 Roscoe Blvd

  Northridge, CA     68,000        87        14,000        1.7   

18460 Roscoe Blvd

  Northridge, CA     25,000        100        5,100        0.6   

18546 Roscoe Blvd

  Northridge, CA     41,000        82        7,800        1.1   

4545 East Chandler

  Chandler, AZ     49,000        57        7,800        0.6   

485 South Dobson

  Chandler, AZ     43,000        76        10,000        0.7   

1501 North Gilbert

  Gilbert, AZ     38,000        69        7,300        0.6   

116 South Palisade

  Santa Maria, CA     33,000        99        4,900        0.6   

525 East Plaza

  Santa Maria, CA     44,000        77        9,700        0.9   

10440 East Riggs

  Chandler, AZ     40,000        54        5,400        0.5   

Metropolitan Park North(3)

  Seattle, WA     179,000        100        89,200        7.6   

4 Research Park Drive

  St. Charles, MO     60,000        100        11,300        1.2   

36 Research Park Drive

  St. Charles, MO     81,000        100        17,300        1.6   

Canyon Plaza

  San Diego, CA     199,000        100        55,000        5.2   

Railway Street Corporate Centre

  Calgary, Canada     135,000        100        42,600        3.8   
   

 

 

     

 

 

   

 

 

 

Total Office

      1,639,000        $ 418,800        40.1

Marketplace at Northglenn(3)

  Northglenn, CO     439,000        85   $ 91,500        6.9

Stirling Slidell Shopping Centre

  Slidell, LA     139,000        72        23,100        1.7   

The District at Howell Mill(4)

  Atlanta, GA     306,000        100        69,200        7.1   
   

 

 

     

 

 

   

 

 

 

Total Retail

      884,000        $ 183,800        15.7

Georgia Door Sales Distribution Center

  Austell, GA     254,000        76   $ 8,500        0.6

105 Kendall Park Lane

  Atlanta, GA     409,000        100        18,800        1.7   

4001 North Norfleet Road

  Kansas City, MO     702,000        100        37,900        3.5   
   

 

 

     

 

 

   

 

 

 

Total Industrial

      1,365,000        $ 65,200        5.8

Station Nine Apartments

  Durham, NC     312,000        100   $ 56,400        5.5

Cabana Beach San Marcos(5)(6)

  San Marcos, TX     258,000        95        23,400        5.4   

Cabana Beach Gainesville(5)(6)

  Gainesville, FL     598,000        92        58,700        8.2   

Campus Lodge Athens(5)(6)

  Athens, GA     229,000        99        16,400        3.1   

Campus Lodge Columbia(5)(6)

  Columbia, MO     256,000        100        19,600        4.9   

The Edge at Lafayette(5)(6)

  Lafayette, LA     207,000        100        20,900        4.3   

Campus Lodge Tampa(5)(6)

  Tampa, FL     477,000        99        36,500        7.0   
   

 

 

     

 

 

   

 

 

 

Total Multifamily

      2,337,000        $ 231,900        38.4

Total

      6,225,000        $ 899,700        100.0
   

 

 

     

 

 

   

 

 

 

 

 

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(1) As of September 30, 2011, no individual property’s book value exceeded 10% of our total assets, and no individual property’s gross revenues exceeded 10% of our gross revenues.
(2) Percent of minimum base rent represents the property’s base rent (excluding above- and below-market lease amortization, tenant recoveries, percentage rents and straight-line rental income) divided by our total base rent for the nine months ended September 30, 2011.
(3) We expect that we will ultimately relinquish our ownership of this property to the lender in a deed in lieu of foreclosure or other alternative transaction including foreclosure in satisfaction of the mortgage.
(4) We own an 88% interest in the joint venture that owns a fee interest in this property.
(5) This multifamily property is located near a university. The occupancy fluctuates during summer months due to leasing efforts before the school year.
(6) We own a 78% interest in the joint venture that owns a fee interest in this property. The remaining 22% ownership interest is owned by an affiliate of LaSalle.

Unconsolidated Properties

 

Property Name

   Type    Location    Net Rentable
Square Feet
     Leased as of
September 30,
2011
    Original
Investment
Amount

(in thousands)
 

Legacy Village(1)

   Retail    Lyndhurst, OH      595,000         91   $ 35,000   

111 Sutter Street(2)

   Office    San Francisco, CA      286,000         89        24,600   
        

 

 

      

 

 

 

Total

           881,000         $ 59,600   
        

 

 

      

 

 

 

 

(1) We own a 47% interest in the joint venture that owns a fee interest in this property.
(2) We own an 80% interest in the joint venture that owns a fee interest in this property.

Investment Company Act of 1940 Exemption

We intend to conduct our operations so that neither we, nor our subsidiaries are investment companies under the Investment Company Act of 1940, as amended, or the Investment Company Act.

Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

Rule 3a-1 under the Investment Company Act, however, generally provides that, notwithstanding Section 3(a)(1)(C) of the Investment Company Act, an issuer will not be deemed to be an “investment company” under the Investment Company Act provided that (1) it does not hold itself out as being engaged primarily, or propose to engage primarily, in the business of investing, reinvesting or trading in securities, and (2) on an unconsolidated basis except as otherwise provided no more than 45% of the value of its total assets, consolidated with the assets of any wholly owned subsidiary (exclusive of U.S. government securities and cash items), consists of, and no more than 45% of its net income after taxes, consolidated with the net income of any wholly owned subsidiary (for the last four fiscal quarters combined), is derived from, securities other than U.S.

 

 

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government securities, securities issued by employees’ securities companies, securities issued by certain majority owned subsidiaries of such company and securities issued by certain companies that are controlled primarily by such company. We believe that we will satisfy this exclusion, and we will monitor our holdings to ensure continuing and ongoing compliance with Rule 3a-1.

In addition, we believe we will not be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, we will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring real property, mortgages and other interests in real estate.

Qualification for exemption from registration under the Investment Company Act will limit our ability to make certain investments. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that would restrict our activities and significantly increase our operating expenses. See “Risk Factors—Risks Related to Our General Business Operations and Our Corporate Structure—Your investment return may be reduced if we are deemed to be an investment company under the Investment Company Act.”

 

 

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RISK FACTORS

You should carefully consider the risks and uncertainties described below as well as any cautionary language or other information contained or incorporated by reference in this prospectus. The risks discussed below are those that we consider to be the most significant to your decision whether to buy shares of our common stock.

Risks Related to Investing in Shares of Our Common Stock

There is no public trading market for shares of our common stock; therefore, your ability to dispose of your shares will likely be limited to the repurchase of shares by us which generally will not be available during the first year after you purchase your shares. If you do sell your shares to us, you may receive less than the price you paid.

There is no current public trading market for shares of our common stock, and we do not expect that such a public market will ever develop. Therefore, the repurchase of shares by us will likely be the only way for you to dispose of your shares. We will repurchase shares at a price equal to our NAV per share of the class of shares being repurchased on the date of repurchase, and not based on the price at which you initially purchased your shares. Shares are not eligible for repurchase for the first year after purchase except upon death or disability of a stockholder. In addition, we may repurchase your shares if you fail to maintain a minimum balance of $5,000 in shares, even if your failure to meet the minimum balance is caused solely by a decline in our NAV. As a result of these terms of our share repurchase plan, you may receive less than the price you paid for your shares when you sell them to us pursuant to our share repurchase plan.

Our ability to repurchase your shares may be limited, and our board of directors may modify or suspend our share repurchase plan at any time.

Our share repurchase plan limits the funds we may use to purchase shares each calendar quarter to 5% of the combined NAV of all classes of shares (including the Class E shares which are not eligible for repurchase) as of the last day of the previous calendar quarter, which means that in any 12-month period, we limit repurchases to approximately 20% of our total NAV. In addition, until our NAV first reaches $800 million, repurchases of shares of all classes in the aggregate will not exceed 25% of the gross proceeds received by us from the commencement of the offering through the last day of the prior calendar quarter. The vast majority of our assets will consist of properties that cannot generally be liquidated quickly. Therefore, we may not always have a sufficient amount of cash to immediately satisfy repurchase requests. Our board of directors may modify or suspend our share repurchase plan should repurchase requests, in the business judgment of our board of directors, place an undue burden on our liquidity, adversely affect our investment operations or pose a risk of having a material adverse impact on stockholders whose shares are not repurchased. Because our board of directors is not required to authorize the recommencement of the share repurchase plan within any specified period of time, our board or directors may effectively terminate the plan by suspending it indefinitely. As a result, your ability to have your shares repurchased by us may be limited and at times no liquidity may be available for your investment. See “Share Repurchase Plan—Repurchase Limitations.”

The availability, timing and amount of cash distributions to you is uncertain and your overall return may be reduced if we pay distributions from sources other than our cash flow from operations.

On September 14, 2011, our board of directors authorized a distribution of $0.55 per share to stockholders of record as of September 30, 2011, payable on November 7, 2011. Although we historically have paid regular quarterly distributions beginning in the first quarterly period following the initial closing of our first offering on December 23, 2004 through March 31, 2009, we did not pay distributions for the nine quarterly periods prior to September 30, 2011 in order to conserve our liquid resources, strengthen our balance sheet and protect the value of our investments during the economic downturn. We bear all expenses incurred in our operations, which are

 

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deducted from cash funds generated from operations prior to computing the amount of cash for distribution to stockholders. In addition our board of directors, in its discretion, may retain any portion of such funds for working capital or other purposes, which was the policy of our board of directors from 2004 through May 2009 when we suspended our distributions as a part of our cash conservation strategy adopted in response to the uncertain economic climate and extraordinary conditions in the commercial real estate industry.

To date all of the distributions we have paid to stockholders have been funded through both a combination of our operations and borrowings and we expect over the near-term our distributions will be funded in the same manner. Our long-term strategy is to fund the payment of regular distributions to our stockholders entirely from cash flow from our operations. However, we may not generate sufficient cash flow from operations to fully fund distributions to stockholders. Therefore, we may choose to use cash flows from financing activities, which include borrowings (including borrowings secured by our assets), net proceeds of this offering or other sources to fund distributions to our stockholders. We may be required to continue to fund our regular distributions from a combination of some of these sources if our investments fail to perform as anticipated, our expenses are greater than expected or due to numerous other factors. We have not established a limit on the amount of our distributions that may be paid from any of these sources. Using certain of these sources may result in a liability to us, which would require a future repayment. The use of these sources for distributions and the ultimate repayment of any liabilities incurred could adversely impact our ability to pay distributions in future periods, decrease our NAV, decrease the amount of cash we have available for operations and new investments and adversely impact the value of your investment in our shares of common stock.

You will not have the opportunity to evaluate future investments we will make with the proceeds raised in this offering prior to purchasing shares of our common stock.

We have not identified investments that we will make with the proceeds of this offering. As a result, you will not be able to evaluate the economic merits, transaction terms or other financial or operational data concerning our future investments prior to purchasing shares of our common stock. You must rely on our advisor and our board of directors to implement our investment policies, to evaluate our investment opportunities and to structure the terms of our investments. Because you cannot evaluate all of the investments we will make in advance of purchasing shares of our common stock, this additional risk may hinder your ability to achieve your own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and other objectives.

This is a “best efforts” offering, and if we are unable to raise substantial funds, we will be limited in the number and type of investments we may make with the offering proceeds, which could negatively impact your investment.

This offering is being made on a “best efforts” basis, whereby the broker-dealers participating in the offering are only required to use their best efforts to sell shares of our common stock and have no firm commitment or obligation to purchase any of the shares of our common stock available in this offering. If we are unable to raise substantial funds, our fixed operating expenses as a percentage of gross income could increase, and our financial condition and ability to pay distributions could be adversely affected.

Our dealer manager has no operating history and our ability to implement our investment strategy is dependent, in part, upon the ability of our dealer manager to successfully conduct this offering, which makes an investment in us more speculative.

We have retained LaSalle Investment Management Distributors, LLC, an affiliate of our advisor, to conduct this offering. LaSalle Investment Management Distributors, LLC is a recently formed entity and this is the first public offering for which it has served as the dealer manager. The success of this offering, and our ability to implement our business strategy, is dependent upon the ability of our dealer manager to build and maintain a network of broker-dealers to sell our shares to their clients. If our dealer manager is not successful in

 

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establishing, operating and managing this network of broker-dealers, our ability to raise proceeds through this offering will be limited and we may not have adequate capital to execute our investment strategy. If we are unsuccessful in executing our investment strategy, you could lose all or a part of your investment.

The performance component of the advisory fee is calculated on the total return to stockholders of each class of our common stock over a calendar year, so it may differ among classes and it may not be consistent with the return on our shares over a longer or shorter time frame.

The performance component of the advisory fee is calculated on the total return to stockholders for each class of our common stock over a calendar year. As a result, our advisor may be entitled to receive the performance component with respect to one class of shares but not another and may be entitled to receive compensation under the performance component of the advisory fee for a given year even if some of our stockholders who purchased shares during such year experienced a decline in NAV per share. Similarly, stockholders who request that we repurchase their shares during a given year may have their shares repurchased at a lower NAV per share as a result of an accrual for the estimated performance component of the advisory fee, even if no performance component is ultimately payable to our advisor at the end of such calendar year. In addition, if the NAV of our classes of common stock remains above certain threshold levels, our advisor’s ability to earn the performance fee in any year will not be affected by poor performance in prior years. Furthermore, the advisor will not be obligated to return any portion of advisory fees paid based on our subsequent performance. See “Management—The Advisory Agreement.”

Valuations and appraisals of our properties and real estate-related assets are estimates of fair value and may not necessarily correspond to realizable value.

For the purposes of calculating our NAV after the close of business on each business day, our properties will initially be valued at cost upon their acquisition which we expect to represent fair value at that time. Thereafter, valuations of properties, which will be based in part on appraisals of each of our properties by our independent valuation advisor at least once during every calendar quarter after the respective calendar quarter in which such property was acquired, will be performed in accordance with our valuation guidelines. Likewise, our investments in real estate-related assets will initially be valued at cost upon their acquisition, and thereafter will be valued quarterly, or in the case of liquid securities, daily, as applicable, at fair value. See “Net Asset Value Calculation and Valuation Guidelines.” Within the parameters of our valuation guidelines, the valuation methodologies used to value our properties will involve subjective judgments regarding such factors as comparable sales, rental and operating expense data, the capitalization or discount rate, and projections of future rent and expenses based on appropriate analysis. Although our valuation guidelines are designed to determine the accurate and timely fair value of our assets, valuations and appraisals of our properties and real estate-related assets will be only estimates of fair value. Ultimate realization of the value of an asset depends to a great extent on economic and other conditions beyond our control and the control of our advisor and independent valuation advisor. Further, valuations do not necessarily represent the price at which an asset would sell, since market prices of assets can only be determined by negotiation between a willing buyer and seller. Therefore, the valuations of our properties and our investments in real estate-related assets may not correspond to the timely realizable value upon a sale of those assets. There will be no retroactive adjustment in the valuation of such assets, the price of our shares of common stock, the price we paid to repurchase shares of our common stock or NAV-based fees we paid to our advisor and dealer manager to the extent such valuations prove to not accurately reflect the true estimated value and are not a precise measure of realizable value. Because the price you will pay for shares of our common stock in this offering, and the price at which your shares may be repurchased by us pursuant to our share repurchase plan, are based on our estimated NAV per share, you may pay more than realizable value or receive less than realizable value for your investment.

 

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Our NAV per share may suddenly change if the appraised values of our properties materially change from prior appraisals or the actual operating results for a particular month differ from what we originally budgeted for that month.

Each of our properties will be appraised at least once per quarter and, under normal circumstances, will not be appraised more frequently than once per quarter. As such, when these appraisals are reflected in our NAV calculation, there may be a sudden change in our NAV per share for each class of our common stock. In addition, actual operating results for a given month may differ from what we originally budgeted for that month, which may cause a sudden increase or decrease in the NAV per share amounts. We will accrue estimated income and expenses on a daily basis based on our budgets. As soon as practicable after the end of each month, we will adjust the income and expenses we estimated for that month to reflect the income and expenses actually earned and incurred. We will not retroactively adjust the NAV per share of each class for each day of the previous month. Therefore, because the actual results from operations may be better or worse than what we previously budgeted for a particular month, the adjustment to reflect actual operating results may cause the NAV per share for each class of our common stock to increase or decrease, and such increase or decrease will occur on the day the adjustment is made.

The NAV per share that we publish may not necessarily reflect changes in our NAV that are not immediately quantifiable.

From time to time, we may experience events with respect to our investments that may have a material impact on our NAV. For example, an unexpected termination or renewal of a material lease, a material change in vacancies or an unanticipated structural or environmental event at a property may cause the value of a property to change materially. The NAV per share of each class of our common stock as published on any given day may not reflect such extraordinary events to the extent that their financial impact is not immediately quantifiable. As a result, the NAV per share of each class published after the announcement of a material event may differ significantly from our actual NAV per share for such class until such time as the financial impact is quantified and our NAV is appropriately adjusted in accordance with our valuation guidelines. The resulting potential disparity in our NAV may inure to the benefit of stockholders whose shares are repurchased or new stockholders, depending on whether our published NAV per share for such class is overstated or understated.

Due to daily fluctuations in our NAV, the price at which your purchase is executed could be higher than our NAV per share at the time you submit your subscription, and the price at which your repurchase is executed could be lower than our NAV per share at the time you submit your repurchase request.

The purchase and repurchase price for shares of our common stock will not be based on any established trading price. Your accepted subscription will be executed at a price equal to our NAV per share for the class of shares being purchased next determined after your subscription is received in proper form and processed, plus, for Class A shares only, any applicable selling commissions. As a result of this process, you will not know the purchase price per share at which your subscription will be executed at the time you submit your subscription. The purchase price per share at which your subscription is executed could be higher than the NAV per share on the date you submitted your subscription. For example, if a subscription is received and processed on a business day and before the close of business (4:00 p.m. Eastern time) on that day, the subscription will be executed at a purchase price equal to our NAV per share for the class of shares being purchased determined after the close of business on that day, plus, for Class A shares, any applicable selling commissions. If a subscription is received and processed on a business day, but after the close of business on that day, the subscription will be executed at a purchase price equal to our NAV per share for the class of shares being purchased determined after the close of business on the next business day, plus, for Class A shares only, any applicable selling commissions. See “Plan of Distribution—Buying Shares.” Similarly, received and processed repurchase requests will be effected at a repurchase price equal to the next-determined NAV per share for the class of shares being repurchased. See “Share Repurchase Plan—General.” Investors who subscribe for shares will not know the purchase price at the time they submit their subscription. Because stockholders will not know the repurchase price that will apply at the time that repurchase requests are submitted, the repurchase price per share at which your repurchase request is executed could be lower than the NAV per share on the date you submitted your repurchase request.

 

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We have broad discretion in how we use the proceeds from this offering, and we may use the proceeds in ways with which you disagree.

We intend to use the net proceeds for general corporate and working capital purposes, including, without limitation, the purchase of properties, capital expenditures related to renewal of leases and re-letting of space, the acquisition and development of (and/or investment in) our properties or, if market conditions warrant, repayment of debt or repurchase of outstanding shares of our common stock. See “Estimated Use of Proceeds.” We have not allocated specific amounts of the net proceeds from this offering for any specific purpose. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. In addition, it is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us or our stockholders. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.

Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may adversely affect the value of our common stock.

In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including medium term notes, senior or subordinated notes and classes of preferred or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock.

Additionally, holders of our common stock will not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 100 million shares of capital stock. Our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. After you purchase shares of our common stock in this offering, our board of directors may elect, without stockholder approval, to: (1) sell additional shares in this or future public offerings; (2) issue equity interests in private offerings; (3) issue shares upon the exercise of the options we may grant to our independent directors or future employees; or (4) issue shares to our advisor, or its successors or assigns, in payment of an outstanding obligation to pay fees for services rendered to us or to reimburse expenses paid on our behalf. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their proportionate ownership.

A portion of the proceeds raised in this offering may be used to repurchase Class M shares that are issued upon conversion of our outstanding Class E shares, which are not being sold in this offering, and such portion of the proceeds may be substantial.

Stockholders who purchased shares of our common stock in our private placements prior to the commencement of this offering, which we refer to as our private placement stockholders, will hold Class E shares in connection with the change of our outstanding and undesignated shares of common stock into Class E shares that will occur prior to the commencement of this offering. The Class E shares convert automatically into Class M shares one year after the offering commencement date, based on a conversion ratio related to the relative NAV per share of the Class E shares to Class M shares, which we expect to be approximately 1:1. The Class M shares issued to the private placement stockholders will become eligible for repurchase under our share repurchase plan one year after the conversion date, or sooner in the event of a stockholder’s death or disability. From and after the date upon which the Class E shares held by our private placement stockholders become eligible for repurchase, a portion of the proceeds received from the sale of Class A and Class M shares in this

 

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offering may be used to repurchase the Class M shares that are issued upon conversion of the Class E shares. As a result, when the Class E shares convert to Class M shares and become eligible for repurchase pursuant to our share repurchase plan, there may be demand from the private placement stockholders for us to repurchase their shares. We plan to use a portion of the proceeds from this offering to satisfy future repurchase requests of private placement stockholders once their Class E shares convert to Class M shares and they have met the applicable holding period. As a result, we may have fewer offering proceeds available from and after the date such shares become eligible for repurchase to satisfy repurchase requests of stockholders who purchase shares in this offering or to acquire additional properties, which may reduce your liquidity and the total return on your investment.

If you purchase shares of common stock in this offering, you may experience immediate dilution in the net tangible book value per share.

Net tangible book value is used as a measure of net worth that reflects certain dilution in the value of our common stock from the issue price as a result of (i) accumulated depreciation and amortization of real estate investments, (ii) fees paid in connection with this offering and (iii) the fees and expenses paid to our advisor and its affiliates in connection with the selection, acquisition, management and sale of our investments. Net tangible book value does not reflect our estimated value per share nor does it necessarily reflect the value of our assets upon an orderly liquidation of the company in accordance with our investment objectives. As of September 30, 2011, our net tangible book value per share, as adjusted for the approximately 4-to-1 stock dividend we intend to effect on or immediately prior to the offering commencement date for the Class E shares, was $8.81, calculated as our net tangible book value as of September 30, 2011 divided by the 4,135,635 shares of our common stock outstanding as of September 30, 2011, as compared to our initial offering price $10.00 per share pursuant to this offering as of September 30, 2011. See “Dilution.”

Risks Related to Conflicts of Interest

Our advisor will face a conflict of interest with respect to the allocation of investment opportunities and competition for tenants between us and other real estate programs that it advises.

Our advisor’s officers and key real estate professionals will identify potential investments in properties and other real estate-related assets which are consistent with our investment guidelines for our possible acquisition. However, our advisor may not acquire an investment in a property unless it has reviewed and approved presenting it to us in accordance with its allocation policies. LaSalle and its affiliates will advise other investment programs that invest in properties and real estate-related assets in which we may be interested. LaSalle could face conflicts of interest in determining which programs will have the opportunity to acquire and participate in such investments as they become available. As a result, other investment programs advised by LaSalle may compete with us with respect to certain investments that we may want to acquire.

In addition, we may acquire properties in geographic areas where other investment programs advised by LaSalle’s own properties. Therefore, our properties may compete for tenants with other properties owned by such investment programs. If one of such investment programs attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays locating another suitable tenant.

Our advisor will face a conflict of interest because the fees it will receive for services performed are based on our NAV, which will be calculated by our advisor.

Our advisor will be paid a fee for its services based on our daily NAV, which will be calculated by our advisor in accordance with our valuation guidelines. The calculation of our NAV in accordance with our valuation guidelines includes certain subjective judgments of our advisor and our independent valuation advisor, including estimates of fair value of particular assets, and therefore may not correspond to realizable value upon a sale of those assets. If our NAV is calculated in a way that is not reflective of our actual NAV, then the purchase price of shares of our common stock on a given date may not accurately reflect the value of our portfolio, and your shares may be worth less than the purchase price.

 

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Our advisor’s management personnel face conflicts of interest relating to time management and there can be no assurance that our advisor’s management personnel will devote adequate time to our business activities or that our advisor will be able to hire adequate additional employees.

All of our advisor’s management personnel, other employees, affiliates and related parties may also provide services to other affiliated entities of our advisor. We are not able to estimate the amount of time that such management personnel will devote to our business. As a result, certain of our advisor’s management personnel may have conflicts of interest in allocating their time between our business and their other activities which may include advising and managing various other real estate programs and ventures, which may be numerous and may change as programs are closed or new programs are formed. During times of significant activity in other programs and ventures, the time they devote to our business may decline and be less than we would require. We expect that as our investment activities expand, our advisor will attempt to hire additional employees who would devote substantially all of their time to our business. However, there can be no assurance that our advisor’s affiliates will devote adequate time to our business activities or that our advisor will be able to hire adequate additional employees.

Our advisor and its affiliates, including our officers and some of our directors, face conflicts of interest caused by compensation arrangements with us and other LaSalle affiliated entities, which could result in actions that are not in our stockholders’ best interests.

Our advisor and its affiliates receive substantial fees from us in return for their services and these fees could influence our advisor’s advice to us. Among other matters, the compensation arrangements could affect their judgment with respect to:

 

   

the continuation, renewal or enforcement of our agreements with our advisors and its affiliates, including the advisory agreement and the agreement with our dealer manager;

 

   

the decision to adjust the value of our real estate portfolio or the value of certain portions of our portfolio of other real estate-related assets, or the calculation of our NAV;

 

   

public offerings of equity by us, which may result in increased advisory fees of the advisor;

 

   

competition for tenants from affiliated programs that own properties in the same geographic area as us; and

 

   

asset sales, which may allow LaSalle or its affiliate to earn disposition fees and commissions.

We currently have, and may enter into, agreements with our sponsor to perform certain services for our real estate portfolio.

Our sponsor provides property management, leasing and other services to property owners, and currently provides certain services to us with respect to a portion of our properties, and we may engage our sponsor to perform additional property or construction management, leasing and other services related to our real estate portfolio. The fees, commissions and expense reimbursements paid to our sponsor in connection with these services have not and will not be determined with the benefit of arm’s length negotiations of the type normally conducted between unrelated parties.

The time and resources that LaSalle affiliated entities devote to us may be diverted and we may face additional competition due to the fact that LaSalle affiliated entities are not prohibited from raising money for another entity that makes the same types of investments that we target.

LaSalle affiliated entities are not prohibited from raising money for another investment entity that makes the same types of investments as those we target. As a result, the time and resources they could devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities. We may also co-invest with any such investment entity. Even though all such co-investments will be subject to approval by our independent directors, they could be on terms not as favorable to us as those we could achieve co-investing with a third party.

 

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Our advisor may have conflicting fiduciary obligations if we acquire properties with its affiliates or other related entities; as a result, in any such transaction we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.

Our advisor may cause us to acquire an interest in a property from its affiliates or through a joint venture with its affiliates or to dispose of an interest in a property to its affiliates. In these circumstances, our advisor will have a conflict of interest when fulfilling its fiduciary obligation to us. In any such transaction we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.

The fees we pay to affiliates in connection with our offerings of securities and in connection with the management of our investments were not determined on an arm’s length basis, and therefore, we do not have the benefit of arm’s length negotiations of the type normally conducted between unrelated parties.

Our advisor, our dealer manager and other affiliates, including our sponsor, have earned and will continue to earn fees, commissions and expense reimbursements from us. The fees, commissions and expense reimbursements paid and to be paid to our advisor, our dealer manager and other affiliates for services they provided us in connection with this offering were determined without the benefit of arm’s length negotiations of the type normally conducted between unrelated parties. See “Conflicts of Interest.”

Our executive officers, our affiliated directors and the key real estate professionals acting on behalf of our advisor face conflicts of interest related to their positions or interests in affiliates of our advisor, which could hinder our ability to implement our business strategy and to generate returns to our stockholders.

Our executive officers, our affiliated directors and the key real estate professionals acting on behalf of our advisor are also involved in the management of other real estate businesses, including other LaSalle affiliated entities, and separate accounts established for institutional investors, each of which invests in the real estate or real estate-related assets. As a result, they owe fiduciary duties to each of these entities and their investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our investment strategy. These individuals face conflicts of interest in allocating their time among us and such other funds, investors and activities. These conflicts of interest could cause these individuals to allocate less of their time to us than we may require, which may adversely impact our operations.

You will not have the benefit of an independent due diligence review in connection with this offering, which increases the risk of your investment.

Because our dealer manager is an affiliate of our advisor, investors will not have the benefit of an independent due diligence review and investigation of type normally conducted by an unaffiliated, independent underwriter in connection with a securities offering. The absence of a due diligence review of us and this offering by an independent underwriter increases the risk you face as a stockholder.

Risks Related to Adverse Changes in General Economic Conditions

Changes in global economic and capital markets conditions, including periods of generally deteriorating real estate industry fundamentals, may significantly affect our results of operations and returns to our stockholders.

We are subject to risks generally incident to the ownership of real estate-related assets, including changes in global, national, regional or local economic, demographic and real estate market conditions, as well as other factors particular to the locations of our investments. A prolonged recession, such as the one experienced over the past few years, and a prolonged recovery period could adversely impact our investments as a result of, among other items, increased tenant defaults under our leases, lower demand for rentable space, as well as potential

 

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oversupply of rentable space, each of which could lead to increased concessions, tenant improvement expenditures or reduced rental rates to maintain occupancies. These conditions could also adversely impact the financial condition of the tenants that occupy our real properties and, as a result, their ability to pay us rents.

In addition, we believe the risks associated with our business are more severe during periods of economic slowdown or recession if these periods are accompanied by deteriorating fundamentals and declining values in the real estate industry. Because many of our debt related investments consist of mortgages secured by real property, these same conditions could also adversely affect the underlying borrowers and collateral of assets that we own. Declining values and deteriorating real estate fundamentals would also likely reduce the level of new mortgage loan originations, since borrowers often use increases in the value of their existing properties to support the purchase of, or investment in, additional properties. Furthermore, borrowers may not be able to pay principal and interest on our loans. Declining real estate values also significantly increases the likelihood that we will incur losses on our debt investments in the event of a default because the value of our collateral may be insufficient to cover some or all of our basis in the investment.

We have recorded impairments of our real as a result of such conditions. To the extent that the general economic slowdown is further prolonged or becomes more severe or real estate fundamentals deteriorate further, it may have a significant and adverse impact on our revenues, results from operations, financial condition, liquidity, overall business prospects and ultimately our ability to pay distributions to our stockholders. We have taken significant measures, including selective property dispositions, to conserve cash and preserve our liquidity. There can be no assurance that our cash conservation strategy will be sufficient, and we may be required to engage in additional property dispositions to preserve our liquidity. In this regard, to the extent the availability of credit remains tight, this may have a negative impact on the price we receive for any property disposition we undertake.

Recent market conditions and the risk of continued market deterioration have caused and may continue to cause the value of our real estate investments to be reduced.

The current economic environment and credit market conditions have impacted the performance and value our real estate investments. Since 2008, our NAV per share of common stock has been as high as $124.65 per share and as low as $47.69 per share, or, adjusting for the stock dividend we intend to effect on or immediately prior to the offering commencement date, approximately $24.93 to $9.54. See “Selected Information Regarding Our Operations—Historical NAV Per Share.” If the current economic or real estate environment were to worsen in the markets where our properties are located, our NAV per share may experience more volatility or further decline as a result. Continued volatility in the fair value and operating performance of commercial real estate has made estimating cash flows from our real estate investments increasingly difficult, since such estimates are dependent upon our judgment regarding numerous factors, including, but not limited to, current and potential future refinancing availability, fluctuations in regional or local real estate values and fluctuations in regional or local rental or occupancy rates, real estate tax rates and other operating expenses.

We cannot assure our stockholders that we will not have to realize or record additional impairment charges, or experience disruptions in cash flows and/or permanent losses related to our real estate investments or decreases in our NAV per share in future periods. In addition, to the extent that the current volatile market conditions persist and/or deteriorate further, these conditions would continue to adversely impact our ability to potentially sell our real estate investments at a price and with terms acceptable to us or at all.

Economic events that may cause our stockholders to request that we repurchase their shares may materially adversely affect our cash flow and our ability to achieve our investment objectives.

Economic events affecting the U.S. and global economies, such as the general negative performance of the real estate sector, could cause our stockholders to seek to repurchase their shares to us pursuant to our share repurchase plan. Our share repurchase plan limits the amount of funds we may use for repurchases during each

 

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calendar quarter to 5% of the combined NAV of all classes of shares (including the Class E shares which are not eligible for repurchase) as of the last day of the previous calendar quarter. In addition, until our total NAV first reaches $800 million, repurchases for shares of all classes in the aggregate will not exceed 25% of the gross proceeds received by us from the commencement of the offering through the last day of the prior calendar quarter. Even if we are able to satisfy all resulting repurchase requests, our cash flow could be materially adversely affected. In addition, if we determine to sell assets to satisfy repurchase requests, our ability to achieve our investment objectives, including, without limitation, diversification of our portfolio by property type and location, moderate financial leverage, conservative operating risk and an attractive level of current income, could be adversely affected.

Inflation or deflation may adversely affect our financial condition and results of operations.

Although neither inflation nor deflation has materially impacted our operations in the recent past, increased inflation could have an adverse impact on our floating rate mortgages and interest rates and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. Inflation could also have an adverse effect on consumer spending which could impact our tenants’ revenues and, in turn, our percentage rents, where applicable. Conversely, deflation could lead to downward pressure on rents and other sources of income.

Risks Related to Our General Business Operations and Our Corporate Structure

We depend on our advisor, the key personnel of our advisor and our dealer manager and we may not be able to secure suitable replacements in the event that we fail to retain their services.

Our success is dependent upon our relationships with, and the performance of, our advisor, the key real estate professionals of our advisor and our dealer manager in the marketing and distribution of this offering, the acquisition and management of our investment portfolio and our corporate operations. Any of these parties may suffer or become distracted by adverse financial or operational problems in connection with their business and activities unrelated to us and over which we have no control. Should any of these parties fail to allocate sufficient resources to perform their responsibilities to us for any reason, we may be unable to achieve our investment objectives. In the event that, for any reason, our advisory agreement or dealer manager agreement is terminated, or our advisor is unable to retain its key personnel, it may be difficult for us to secure suitable replacements on acceptable terms, which would adversely impact the value of your investment.

Our advisor’s inability to retain the services of key real estate professionals could negatively impact our performance.

Our success depends to a significant degree upon the contributions of certain key real estate professionals employed by our advisor, each of whom would be difficult to replace. Neither we nor our advisor have employment agreements with these individuals and they may not remain associated with us or our advisor. If any of these persons were to cease their association with us or our advisor, our operating results could suffer. Our future success depends, in large part, upon our sponsor’s ability to attract and retain highly skilled managerial, operational and marketing professionals. If our sponsor loses or is unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered.

We are required to pay substantial compensation to our advisor and its affiliates, which may be increased or decreased during this offering or future offerings by a majority of our board of directors, including a majority of the independent directors.

Pursuant to our agreements with our advisor and its affiliates, including our sponsor, we are obligated to pay substantial compensation to our advisor and its affiliates. Subject to limitations in our charter, the fees, expense reimbursements and other payments that we are required to pay to our advisor and its affiliates may increase or

 

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decrease during this offering or future offerings from those described elsewhere in this prospectus if such change is approved by a majority of our board of directors, including a majority of the independent directors. See “Management—The Advisory Agreement.” These payments to our advisor and its affiliates will decrease the amount of cash we have available for operations and new investments and could negatively impact our NAV, our ability to pay distributions and your overall return.

We may change our investment and operational policies without stockholder consent.

Except for changes to the investment objectives and investment restrictions contained in our charter, which require stockholder consent to amend, we may change our investment and operational policies, including our policies with respect to investments, operations, indebtedness, capitalization and distributions, at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier or more highly leveraged than, the types of investments described in this prospectus. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could materially affect our ability to achieve our investment objectives.

The termination or replacement of our advisor could trigger a repayment event under our mortgage loans for some of our properties and the credit agreement governing any line of credit we obtain.

Lenders for certain of our properties may request provisions in the mortgage loan documentation that would make the termination or replacement of our advisor an event requiring the immediate repayment of the full outstanding balance of the loan. If we elect to obtain a line of credit and are able to do so, the termination or replacement of our advisor could trigger repayment of outstanding amounts under the credit agreement governing our line of credit. If a repayment event occurs with respect to any of our properties, our ability to achieve our investment objectives could be materially adversely affected.

Our board of directors will not approve each investment selected by our advisor.

Our board of directors has approved investment guidelines that delegate to our advisor the authority to execute (1) acquisitions and dispositions of real property and (2) investments in other real estate-related assets, in each case so long as such investments are consistent with the investment guidelines. Our directors will review our investment guidelines on an annual basis and our investment portfolio on a quarterly basis or, in each case, as often as they deem appropriate. The prior approval of our board of directors will be required only for the acquisition or disposition of assets that are not in accordance with our investment guidelines. In addition, in conducting periodic reviews, our directors will rely primarily on information provided to them by our advisor. Furthermore, transactions entered into on our behalf by our advisor may be costly, difficult or impossible to unwind when they are subsequently reviewed by our board of directors.

We have a history of operating losses and cannot assure you that we will achieve profitability.

Since our inception in 2004, we have experienced net losses (calculated in accordance with GAAP) each fiscal year, except for 2005, and, as of September 30, 2011, we had an accumulated deficit of $152.3 million. The extent of our future operating losses and the timing of profitability are highly uncertain, and we may never achieve or sustain profitability.

We are and may continue to be subject to litigation, which could have a material adverse effect on our financial condition.

We currently are, and are likely to continue to be, subject to litigation. Some of these claims may result in significant defense costs and potentially significant judgments against us. Although we generally intend to vigorously defend ourselves against any of these claims, we cannot be certain of the ultimate outcomes of

 

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currently asserted claims or of those that arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, would adversely impact our earnings and cash flows, thereby impacting our ability to service debt and make quarterly distributions to our stockholders. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

The limits on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that could otherwise benefit our stockholders.

Our charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% in value of our outstanding capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock. A person that did not acquire more than 9.8% of our shares may become subject to our charter restrictions if repurchases by other stockholders cause such person’s holdings to exceed 9.8% of our outstanding shares. Any attempt to own or transfer shares of our common stock in excess of the ownership limit without the consent of our board of directors will be void, or will result in those shares being transferred by operation of law to a charitable trust, and the person who acquired such excess shares will not be entitled to any distributions thereon or to vote those excess shares. Our 9.8% ownership limitation may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for our stockholders.

Maryland law and our organizational documents limit our rights and the rights of our stockholders to recover claims against our directors and officers, which could reduce your and our recovery against them if they cause us to incur losses.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. In addition, Maryland law and our charter provide that no director or officer shall be liable to us or our stockholders for monetary damages unless the director or officer (1) actually received an improper benefit or profit in money, property or services or (2) was actively and deliberately dishonest as established by a final judgment. Moreover, our charter generally requires us to indemnify and advance expenses to our directors and officers for losses they may incur by reason of their service in those capacities unless their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, they actually received an improper personal benefit in money, property or services or, in the case of any criminal proceeding, they had reasonable case to believe the act or omission was unlawful. As a result, you and we may have more limited rights against our directors or officers than might otherwise exist under common law, which could reduce your and our recovery from these persons if they act in a manner that causes us to incur losses. In addition, we are obligated to fund the defense costs incurred by these persons in some cases. However, our charter provides that we may not indemnify our directors, or our advisor and its affiliates, for any liability or loss suffered by them or hold our directors, our advisor and its affiliates harmless for any liability or loss suffered by us, unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability or loss was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates, or gross negligence or willful misconduct by our independent directors, and the indemnification or agreement to hold harmless is recoverable only out of our net assets or the proceeds of insurance and not from the stockholders. See “Management—Limited Liability and Indemnification of Directors, Officers, the Advisor and Other Agents.”

 

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Certain provisions in our organizational documents and Maryland law could inhibit transactions or changes of control under circumstances that could otherwise provide stockholders with the opportunity to realize a premium.

Our charter and bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. For example, our charter authorizes the issuance of preferred stock which can be created and issued by our board of directors without prior stockholder approval, with rights senior to those of our common stock, and prohibits our stockholders from filling board vacancies. In addition, for so long as the advisory agreement is in effect, our advisor has the right to nominate, subject to the approval of such nomination by our board of directors, three affiliated directors to the slate of directors to be voted on by the stockholders at our annual meeting of stockholders. Furthermore, our board of directors must also consult with our advisor in connection with (i) its selection of each independent director for nomination to the slate of directors to be voted on at the annual meeting of stockholders, and (ii) filling any vacancies created by the removal, resignation, retirement or death of any director. These and other provisions in our charter and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including a merger, tender offer or proxy contest involving our company.

In addition, certain provisions of the Maryland General Corporation Law applicable to us prohibit business combinations with: (1) any person who beneficially owns 10% or more of the voting power of our outstanding voting stock, which we refer to as an “interested stockholder;” (2) an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock, which we also refer to as an “interested stockholder;” or (3) an affiliate of an interested stockholder. These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination with the interested stockholder or an affiliate of the interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting stock, and two-thirds of the votes entitled to be cast by holders of our voting stock other than shares held by the interested stockholder or its affiliate with whom the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ best interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. Pursuant to the business combination statute, our board of directors has exempted any business combination involving us and any person, provided that such business combination is first approved by a majority of our board of directors, including a majority of our independent directors.

Your investment return may be reduced if we are deemed to be an investment company under the Investment Company Act.

Neither we nor any of our subsidiaries intend, or expect to be an investment company under the Investment Company Act. Rule 3a-1 under the Investment Company Act generally provides that, notwithstanding Section 3(a)(1)(C) of the Investment Company Act, an issuer will not be deemed to be an “investment company” under the Investment Company Act provided that (1) it does not hold itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, and (2) on an unconsolidated basis except as otherwise provided, no more than 45% of the value of its total assets, consolidated with the assets of any wholly-owned subsidiary, (exclusive of U.S. government securities and cash items) consists of, and no more than 45% of its net income after taxes, consolidated with the net income of any wholly owned subsidiary, (for the last four fiscal quarters combined) is derived from, securities other than U.S. government securities, securities issued by employees’ securities companies, securities issued by certain majority owned subsidiaries of such company and securities issued by certain companies that are controlled primarily by such company. In addition, we believe we will not be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because we will not engage primarily or hold ourselves out as

 

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being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our wholly-owned or majority-owned subsidiaries, we will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring real property, mortgages and other interests in real estate.

To maintain compliance with this exception from the definition of investment company under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may be unable to purchase securities we would otherwise want to purchase.

We believe that we will satisfy this exclusion. However, if we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

 

   

limitations on capital structure;

 

   

restrictions on specified investments;

 

   

restrictions or prohibitions on retaining earnings;

 

   

restrictions on leverage or senior securities;

 

   

restrictions on unsecured borrowings;

 

   

requirements that our income be derived from certain types of assets;

 

   

prohibitions on transactions with affiliates; and

 

   

compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

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

Registration with the SEC as an investment company would be costly, would subject our company to a host of complex regulations, and would divert the attention of management from the conduct of our business. In addition, the purchase of real estate that does not fit our investment guidelines and the purchase or sale of investment securities or other assets to preserve our status as a company not required to register as an investment company could materially adversely affect our NAV, the amount of funds available for investment and our ability to pay distributions to our stockholders.

Risks Related to Investments in Real Property

We depend on tenants for our revenue, and accordingly, lease terminations and/or tenant defaults, particularly by one of our significant tenants, could adversely affect the income produced by our properties, which may harm our operating performance, thereby limiting our ability to pay distributions to our stockholders.

The success of our investments materially depends on the financial stability of our tenants, any of whom may experience a change in their business at any time. For example, the current economic conditions have resulted in increasing vacancy rates for all major types of property, which include, office, retail, industrial and multifamily properties, due to increased tenant delinquencies or defaults under leases, generally lower demand for rentable space, as well as potential oversupply of rentable space. As a result, our tenants may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments when due, or declare bankruptcy. Any of these actions could result in the termination of the tenants’ leases, or expiration of existing leases without renewal, and the loss of rental income attributable to the terminated or expired leases. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as a landlord and

 

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may incur substantial costs in protecting our investment and re-letting our property. If significant leases are terminated or defaulted upon, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. In addition, significant expenditures, such as mortgage payments, real estate taxes and insurance and maintenance costs, are generally fixed and do not decrease when revenues at the related property decrease.

The occurrence of any of the situations described above, particularly if it involves one of our significant tenants, could seriously harm our operating performance. If any of these significant tenants were to default on its lease obligation(s) to us or not extend current leases as they mature, our results of operations and ability to pay distributions to our stockholders could be adversely affected. As lead tenants, the revenues generated by the properties these tenants occupy are substantially dependent upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency, or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments, which may have a substantial adverse effect on our operating performance.

Our revenues will be significantly influenced by the economies and other conditions of the office, retail, industrial and multifamily markets in general and the specific geographic markets in which we operate where we have high concentrations of these types of properties.

As of September 30, 2011, our diversification of consolidated properties by property type consisted of 46% in the office property sector, 27% in the multifamily property sector, 19% in the retail property sector and 8% in the industrial property sector. Our diversification of unconsolidated properties by property type at September 30, 2011 consisted of 51% in the retail property sector and 49% in the office property sector. Because our portfolio consists primarily of office, retail, industrial and multifamily properties, we are subject to risks inherent in investments in these types of property. This concentration exposes us to risk of economic downturns in these property sectors to a greater extent than if our portfolio included other sectors in the real estate industry.

Additionally, as of September 30, 2011, approximately 43% of the current fair value of our consolidated properties was geographically concentrated in the western United States. Approximately 51% and 49% of the current fair value of our unconsolidated properties was geographically concentrated in the mid-western and western regions of the United States, respectively, as of September 30, 2011. Moreover, our properties located in California, Georgia, Florida and Missouri accounted for approximately 17%, 13%, 13%, and 10% of our consolidated revenues, respectively. As a result, we are particularly susceptible to adverse market conditions in these particular areas, including the current economic conditions, the reduction in demand for office, retail, industrial or multifamily properties, industry slowdowns, relocation of businesses and changing demographics. Adverse economic or real estate developments in the markets in which we have a concentration of properties, or in any of the other markets in which we operate, or any decrease in demand for office, retail, industrial or apartment space resulting from the local or national business climate, could adversely affect our rental revenues and operating results.

We face risks associated with our student-oriented apartment communities.

For the year ended December 31, 2010 and the nine months ended September 30, 2011, student-oriented apartment communities comprised approximately 31% and 32%, respectively, of our revenues. Unlike other multifamily housing, student apartment communities are typically leased on an individual lease liability basis by bed which limits each resident’s liability to his or her own rent without liability for a roommate’s rent and are typically for a term of less than one year. Student apartment communities are also typically leased during a limited leasing season that usually begins in January and ends in August of each year. As a result, we may experience a significant reduction in our cash flows and revenues from our student oriented housing properties during the summer months or if we are unable to find new individual tenants for these properties after the expiration of the lease, which could have a material adverse effect on our NAV.

 

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Many colleges and universities own and operate their own competing on-campus housing facilities, and changes in university admission policies could adversely affect us. For example, if a university reduces the number of student admissions or requires that certain students, such as freshman, live in a university owned facility, the demand for beds at our properties may be reduced and our occupancy rates may decline.

Our operating results are affected by economic and regulatory changes that impact the real estate market in general.

Real estate historically has experienced significant fluctuations and cycles in value that have resulted in reductions in the value of real estate-related investments. Real estate will continue to be subject to such fluctuations and cycles in value in the future that may negatively impact the value of our investments. The marketability and value of our investments will depend on many factors beyond our control. The ultimate performance of our investments will be subject to the varying degrees of risk generally incident to the ownership and operation of the underlying real properties. The ultimate value of our investment in the underlying real properties depends upon our ability to operate the real properties in a manner sufficient to maintain or increase revenues in excess of operating expenses and debt service. Revenues and the values of our properties may be adversely affected by:

 

   

changes in national or international economic conditions;

 

   

the cyclicality of real estate;

 

   

changes in local market conditions due to changes in general or local economic conditions and neighborhood characteristics;

 

   

the financial condition of tenants, buyers and sellers of properties;

 

   

competition from other properties offering the same or similar services;

 

   

changes in interest rates and in the availability, cost and terms of mortgage debt;

 

   

access to capital;

 

   

the impact of present or future environmental legislation and compliance with environmental laws;

 

   

the ongoing need for capital improvements (particularly in older structures);

 

   

changes in real estate tax rates and other operating expenses;

 

   

adverse changes in governmental rules and fiscal policies;

 

   

civil unrest;

 

   

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

 

   

adverse changes in zoning laws; and

 

   

other factors that are beyond our control or the control of the real property owners.

All of these factors are beyond our control. Any negative changes in these factors could affect our ability to meet our obligations and pay distributions to stockholders.

Our retail properties may decline in rental revenue and/or occupancy as a result of co-tenancy provisions contained in certain tenant’s leases.

Tenants of certain of our retail properties have leases that contain certain co-tenancy provisions that require either certain tenants and/or certain amounts of square footage to be occupied and open for business. If these co-tenancy provisions are not satisfied then other tenants of these properties may have the right to, among other

 

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things, pay reduced rents and/or terminate the lease. As a result the loss of a single tenant on these properties, and the triggering of these co-tenancy provisions, could result in reduced rental income and/or reduced occupancy with respect to these properties, which could have a material adverse effect on our business, financial condition and results of operations.

We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let space, which may adversely affect our operating results.

Leases representing approximately 14.3% and 19.4% of the annualized minimum base rent from our consolidated properties, as of September 30, 2011, were scheduled to expire in 2011 and 2012 (excluding our multifamily investments), respectively, and 1.4% and 7.8% of the leases on our unconsolidated properties are scheduled to expire in 2011 and 2012, respectively. In addition, Fannie Mae’s lease, which accounted for 6.5% of our annualized base rent, is scheduled to expire on December 31, 2011. Because we compete with a number of other developers, owners and managers of office, retail industrial and multifamily properties, we may be unable to renew leases with our existing tenants and, if our current tenants do not renew their leases, we may be unable to re-let the space to new tenants. Furthermore, to the extent that we are able to renew leases that are scheduled to expire in the short-term or re-let such space to new tenants, heightened competition resulting from adverse market conditions may require us to utilize rent concessions and tenant improvements to a greater extent than we historically have. In addition, the economic turmoil of the last several years has led to foreclosures and sales of foreclosed properties at depressed values, and we may have difficulty competing with competitors who have purchased properties in the foreclosure process, because their lower cost basis in their properties may allow them to offer space at reduced rental rates.

If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants upon expiration of their existing leases. Even if our tenants renew their leases or we are able to re-let the space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. If we are unable to renew leases or re-let space in a reasonable time, or if rental rates decline or tenant improvement, leasing commissions, or other costs increase, our financial condition, cash flows, cash available for distribution, value of our common stock, and ability to satisfy our debt service obligations could be materially adversely affected.

Competition in acquiring properties may reduce our profitability and the return on your investment.

We face competition from various entities for investment opportunities in properties, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships, and developers. We may also face competition from real estate programs sponsored by Jones Lang LaSalle and its affiliates. Many third party competitors have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do. In addition, as the economy recovers, the number of entities and the amount of funds competing for suitable investments may increase. In addition to third party competitors, other programs sponsored by Jones Lang LaSalle may raise additional capital and seek investment opportunities under our sponsor’s allocation policy. If we acquire properties and other investments at higher prices or by using less-than-ideal capital structures, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets. If such events occur, you may experience a lower return on your investment.

 

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To the extent we resume acquiring properties, our operating results may depend on the availability of, and our advisor’s ability to identify, acquire and manage, appropriate real estate investment opportunities. It may take considerable time for us or our advisor to identify and acquire appropriate investments. In general, the availability of desirable real estate opportunities and our investment returns will be affected by the level and volatility of interest rates, conditions in the financial markets and general, national and local economic conditions. No assurance can be given that we will be successful in identifying, underwriting and then acquiring investments which satisfy our return objectives or that such investments, once acquired, will perform as intended. The real estate industry is competitive and we compete for investments with traditional equity sources, both public and private, as well as existing funds, or funds formed in the future, with similar investment objectives. If we cannot effectively compete with these entities for investments, its financial performance may be adversely affected.

Potential losses or damage to our properties may not be covered by insurance.

Our tenants are required to maintain property insurance coverage for the properties under net leases and we carry comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in our portfolio not insured by our tenants under a blanket policy. Our advisor will select policy specifications and insured limits that it believes to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. Insurance policies on our properties may include some coverage for losses that are generally catastrophic in nature, such as losses due to terrorism, earthquakes and floods, but we cannot assure you that it will be adequate to cover all losses and some of our policies will be insured subject to limitations involving large deductibles or co-payments and policy limits which may not be sufficient to cover losses. If we or one or more of our tenants experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

In the event we obtain options to acquire properties, we may lose the amount paid for such options whether or not the underlying property is purchased.

We may obtain options to acquire certain properties. The amount paid for an option, if any, is normally surrendered if the property is not purchased and may or may not be credited against the purchase price if the property is purchased. Any unreturned option payments will reduce the amount of cash available for further investments or distributions to our stockholders.

Our real properties are subject to property and other taxes that may increase in the future, which could adversely affect our cash flow.

Our real properties are subject to real and personal property and other taxes that may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. Certain of our leases provide that the property taxes, or increases therein, are charged to the lessees as an expense related to the real properties that they occupy while other leases will generally provide that we are responsible for such taxes. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable governmental authorities. If property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authorities may place a lien on the property and the property may be subject to a tax sale. In addition, we will generally be responsible for property taxes related to any vacant space.

 

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We rely on third party property managers to operate our properties and leasing agents to lease vacancies in our properties.

Although our advisor has hired and may hire Jones Lang LaSalle to manage and lease certain of our properties, we also rely on third party property managers and leasing agents to manage and lease vacancies in most of our properties. The third party property managers have significant decision-making authority with respect to the management of our properties. Our ability to direct and control how our properties are managed on a day-to-day basis may be limited because we will engage third parties to perform this function. Thus, the success of our business may depend in large part on the ability of our third party property managers to manage the day-to-day operations and the ability of our leasing agents to lease vacancies in our properties. Any adversity experienced by our property managers or leasing agents could adversely impact the operation and profitability of our properties.

We may not have sole decision-making authority over some of our real property investments and may be unable to take actions to protect our interests in these investments.

A component of our investment strategy includes entering into joint venture agreements with partners in connection with certain property acquisitions. As of September 30, 2011, we had interests in nine joint ventures that collectively own nine properties across the United States. We may co-invest in the future with third parties through partnerships or other entities, which we collectively refer to as joint ventures, acquiring non-controlling interests in or sharing responsibility for managing the affairs of the joint venture. In such event, we would not be in a position to exercise sole decision-making authority regarding the joint venture. Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their required capital contributions. Co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the co-venturer would have full control over the joint venture. Disputes between us and co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our co-venturers. In addition, our lack of control over the properties in which we invest could result in us being unable to obtain accurate and timely financial information for these properties and could adversely affect our internal control over financial reporting.

We may not have funding for future tenant improvements, which may adversely affect the value of our assets, our results of operations and returns to our stockholders.

When a tenant at one of our real properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new tenants, we will be required to expend substantial funds to construct new tenant improvements in the vacated space. We do not anticipate that we will maintain permanent working capital reserves and do not currently have an identified funding source to provide funds that may be required in the future for tenant improvements and tenant refurbishments in order to attract new tenants. If we do not establish sufficient reserves for working capital or obtain adequate financing to supply necessary funds for capital improvements or similar expenses, we may be required to defer necessary or desirable improvements to our real properties. If we defer such improvements, the applicable real properties may decline in value, and it may be more difficult for us to attract or retain tenants to such real properties or the amount of rent we can charge at such real properties may decrease. We cannot assure our stockholders that we will have any sources of funding available to us for repair or reconstruction of damaged real property in the future.

 

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The costs of compliance with governmental laws and regulations may adversely affect our financial condition and results of operations.

Real estate and the operations conducted on properties are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Tenants’ ability to operate and generate income to pay their lease obligations may be affected by permitting and compliance obligations arising under such laws and regulations. Some of these laws and regulations may impose joint and several liability on tenants, owners, or managers for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder our ability to sell, rent, or pledge such property as collateral for future borrowings.

Compliance with new laws or regulations or stricter interpretation of existing laws by agencies or the courts may require us to incur material expenditures. Future laws, ordinances, or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties such as the presence of underground storage tanks or activities of unrelated third parties may affect our properties. In addition, there are various local, state, and federal fire, health, life-safety, and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our cash flows and ability to pay distributions and may reduce the value of your investment.

As the present or former owner or manager of real property, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination.

We could become subject to liability in the form of fines or damages for noncompliance with environmental laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid hazardous materials, the remediation of contaminated property associated with the disposal of solid and hazardous materials and other health and safety-related concerns. Some of these laws and regulations may impose joint and several liability on tenants, owners or managers for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. Under various federal, state and local environmental laws, ordinances, and regulations, a current or former owner or manager of real property may be liable for the cost to remove or remediate hazardous or toxic substances, wastes, or petroleum products on, under, from, or in such property. These costs could be substantial and liability under these laws may attach whether or not the owner or manager knew of, or was responsible for, the presence of such contamination. Even if more than one person may have been responsible for the contamination, each liable party may be held entirely responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or manager of a property for damages based on personal injury, natural resources, or property damage and/or for other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of contamination on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. In addition, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which the property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants. There can be no assurance that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of the tenants, by the existing condition of the land, by operations in the vicinity of the properties. There can be no assurance that these laws, or changes in these laws, will not have a material adverse effect on our business, results of operations or financial condition.

 

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Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and remediation costs.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed within a certain period of time. Some molds may produce airborne toxins or irritants. Public concern about indoor exposure to mold has been increasing along with awareness that exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of a significant amount of mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected properties. In addition, the presence of mold could expose us to liability from tenants, employees of tenants and others if property damage or health concerns arise as a result of the presence of mold in or on our properties. If we ever become subject to mold-related liabilities, our business, financial condition and results of operations could be materially and adversely affected.

Compliance or failure to comply with the American Disabilities Act and other similar regulations could result in substantial costs.

Our properties are, or may become, subject to the Americans with Disabilities Act of 1990, as amended, or the ADA. Under the ADA, all places of public accommodation must meet federal requirements related to access and use by persons with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. New legislation at the federal, state and local levels also may require modifications to our properties, or restrict our ability to renovate properties. We will attempt to acquire properties that comply with the ADA and other similar legislation or place the burden on the seller or other third party to ensure compliance with such legislation. However, we may not be able to acquire properties or allocate responsibilities in this manner which could reduce cash available for investments and the amount of distributions to you.

Future terrorist attacks may result in financial losses for us and limit our ability to obtain terrorism insurance.

Our portfolio maintains significant holdings in areas that are located in or around major population centers that may be high-risk geographical areas for terrorism and threats of terrorism. Future terrorist attacks and the anticipation of any such attacks, or the consequences of the military or other response by the United States and its allies, could severely impact the demand for, and value of, our properties. Terrorist attacks in and around any of the major metropolitan areas in which we own properties also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and could thereafter materially impact the availability or cost of insurance to protect against such acts. A decrease in demand could make it difficult to renew or re-lease our properties at lease rates equal to or above historical rates. To the extent that any future terrorist attacks otherwise disrupt our tenants’ businesses, it may impair our tenants’ ability to make timely payments under their existing leases with us, which would harm our operating results.

In addition, the events of September 11, 2001 created significant uncertainty regarding the ability of real estate owners of high profile properties to obtain insurance coverage protecting against terrorist attacks at commercially reasonable rates, if at all. With the enactment of the Terrorism Risk Insurance Act, which was extended through 2014 by Terrorism Risk Insurance Program Reauthorization Act of 2007, insurers must make terrorism insurance available under their property and casualty insurance policies, but this legislation does not regulate the pricing of such insurance. The absence of affordable insurance coverage may affect the general real estate lending market, lending volume and the market’s overall loss of liquidity may reduce the number of suitable investment opportunities available to us and the pace at which its investments are made. We currently carry terrorism insurance under our master insurance program on all of our investments, except for Railway Street Corporate Centre, an office building located in Calgary, Canada.

 

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We are subject to additional risks from our international investments.

We expect to purchase real estate investments located outside the United States, and may make or purchase loans or participations in loans secured by property located outside the United States. These investments may be affected by factors peculiar to the laws and business practices of the jurisdictions in which the properties are located. These laws and business practices may expose us to risks that are different from and in addition to those commonly found in the United States. Foreign investments could be subject to the following additional risks:

 

   

the burden of complying with a wide variety of foreign laws;

 

   

changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws or changes in such laws;

 

   

existing or new laws relating to the foreign ownership of real property or loans and laws restricting the ability of foreign persons or companies to remove profits earned from activities within the country to the person’s or company’s country of origin;

 

   

the potential for expropriation;

 

   

possible currency transfer restrictions;

 

   

imposition of adverse or confiscatory taxes;

 

   

changes in real estate and other tax rates and changes in other operating expenses in particular countries;

 

   

possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments;

 

   

adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions;

 

   

the willingness of domestic or foreign lenders to make loans in certain countries and changes in the availability, cost and terms of loan funds resulting from varying national economic policies;

 

   

general political and economic instability in certain regions;

 

   

the potential difficulty of enforcing obligations in other countries; and

 

   

our limited experience and expertise in foreign countries relative to its experience and expertise in the United States.

Investments in properties or other real estate investments outside the United States subject us to foreign currency risks, which may adversely affect distributions and our REIT status.

Revenues generated from any properties or other real estate investments we acquire or ventures we enter into relating to transactions involving assets located in markets outside the United States likely will be denominated in the local currency. Therefore any investments we make outside the United States may subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. As a result, changes in exchange rates of any such foreign currency to U.S. dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity.

Changes in foreign currency exchange rates used to value a REIT’s foreign assets may be considered changes in the value of the REIT’s assets. These changes may adversely affect our status as a REIT. Further, bank accounts in foreign currency that are not considered cash or cash equivalents may adversely affect our status as a REIT.

 

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Inflation in foreign countries, along with government measures to curb inflation, may have an adverse effect on our investments.

Certain countries have in the past experienced extremely high rates of inflation. Inflation, along with governmental measures to curb inflation, coupled with public speculation about possible future governmental measures to be adopted, has had significant negative effects on the certain international economies in the past and this could occur again in the future. The introduction of governmental policies to curb inflation can have an adverse effect on our business. High inflation in the countries in which we purchase real estate or make other investments could increase our expenses and we may not be able to pass these increased costs onto our tenants.

Lack of compliance with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including potential competitors, are not subject to these prohibitions. Fraudulent practices, including corruption, extortion, bribery, pay-offs, theft and others, occur from time-to-time in countries in which we may do business. If people acting on our behalf or at our request are found to have engaged in such practices, severe penalties and other consequences could be imposed on us that may have a material adverse effect on our business, results of operations, cash flows and financial condition and our ability to pay distributions to our stockholders and the value of your investment.

Risks Related to Investments in Real Estate-Related Assets

Our investments in real estate-related assets will be subject to the risks related to the underlying real estate.

Real estate loans secured by properties are subject to the risks related to underlying real estate. The ability of a borrower to repay a loan secured by a property typically is dependent upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Any default on the loan could result in our acquiring ownership of the property, and we would bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan. In addition, foreclosure of a mortgage loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed loan.

We will not know whether the values of the properties ultimately securing our loans will remain at the levels existing on the dates of origination of those loans. If the values of the underlying properties decline, our risk will increase because of the lower value of the security associated with such loans. In this manner, real estate values could impact the values of our loan investments. Our investments in mortgage-backed securities, collateralized debt obligations and other real estate-related investments may be similarly affected by property values.

The real estate-related equity securities in which we may invest are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities.

We may invest in common and preferred stock of both publicly traded and private real estate companies, which involves a higher degree of risk than debt securities due to a variety of factors, including that such investments are subordinate to creditors and are not secured by the issuer’s properties. Our investments in real estate-related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related common equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate discussed in this prospectus.

 

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The value of the real estate-related securities that we may invest in may be volatile.

The value of real estate-related securities, including those of publicly-listed REITs, fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Different parts of the market and different types of equity securities can react differently to these developments and they can affect a single issuer, multiple issuers within an industry, the economic sector or geographic region, or the market as a whole. The real estate industry is sensitive to economic downturns. The value of securities of companies engaged in real estate activities can be affected by changes in real estate values and rental income, property taxes, interest rates and tax and regulatory requirements. In addition, the value of a REIT’s equity securities can depend on the capital structure and amount of cash flow generated by the REIT.

We may invest in mezzanine debt which is subject to greater risks of loss than senior loans secured by real properties, which may result in losses to us.

We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. These types of investments involve a higher degree of risk than first-lien mortgage loans secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.

We expect a portion of our securities portfolio to be illiquid, and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

We may purchase real estate-related securities in connection with privately negotiated transactions that are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater risk of our inability to recover loaned amounts in the event of a borrower’s default.

Interest rate and related risks may cause the value of our real estate-related assets to be reduced.

We are subject to interest rate risk with respect to our investments in fixed income securities such as preferred equity and debt securities, and to a lesser extent dividend paying common stocks. Interest rate risk is the risk that these types of securities will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the fair value of such securities will decline, and vice versa. Our investment in such securities means that our NAV may decline if market interest rates rise.

During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which is generally known as “call risk” or “prepayment risk.” If this occurs, we may be forced to reinvest in lower yielding securities. This is known as “reinvestment risk.” Preferred equity and debt securities frequently

 

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have call features that allow the issuer to redeem the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our securities investments.

Risks Related to Debt Financing

We have incurred and are likely to continue to incur mortgage or other indebtedness, which may increase our business risks, could hinder our ability to pay distributions and could decrease the value of your investment.

As of September 30, 2011, we had total outstanding indebtedness of approximately $583.1 million. In addition, declining commercial property values associated with the downturn in the commercial real estate sector since 2007 have caused our portfolio leverage to exceed our historical target leverage ratio of 65%. Based upon the valuation declines in our portfolio, we estimate our current loan-to-value to be approximately 78%. We may incur additional indebtedness to acquire properties or other real estate-related investments, to fund property improvements and other capital expenditures or for other general corporate purposes. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300% of the value of our net assets. See “Investment Objectives and Strategy—Borrowing Policies.” We may obtain mortgage loans and pledge some or all of our properties as security for these loans to obtain funds to acquire additional properties or for working capital. We may also obtain a line of credit to provide a flexible borrowing source that will allow us to fund repurchases, to pay distributions or to use for other business purposes.

If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage loans on that property, then the amount of cash available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the loan secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage loans to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the loan if it is not paid by such entity. If any mortgage contains cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Continued uncertainty and volatility in the credit markets could affect our ability to obtain debt financing on reasonable terms, or at all, which could reduce the number of properties we may be able to acquire and the amount of cash distributions we can make to our stockholders.

The U.S. and global credit markets have experienced severe dislocations and liquidity disruptions over the past several years, which have caused volatility in the credit spreads on prospective debt financings and have constrained the availability of debt financing due to the reluctance of lenders to offer financing at high leverage ratios. The uncertainty in the credit markets may adversely impact our ability to access additional debt financing on reasonable terms or at all, which may adversely affect investment returns on future acquisitions or our ability to make acquisitions.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates, increased credit spreads, decreased liquidity or other factors, we may not be able to finance the initial purchase of properties. In addition, when we incur mortgage debt on properties, we run the risk of being unable to refinance such debt upon maturity, or of being unable to refinance on favorable terms. As of September 30, 2011, we had approximately $583.1 million in aggregate outstanding mortgage notes payable, which had maturity dates ranging from September 1, 2012 through March 1, 2027.

 

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If interest rates are higher or other financing terms, such as principal amortization, the need for a corporate guaranty, or other terms are not as favorable when we refinance debt or issue new debt, our income could be reduced. To the extent we are unable to refinance debt on reasonable terms, or at appropriate times or at all, we may be required to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by borrowing more money.

Increases in interest rates could increase the amount of our loan payments and adversely affect our ability to pay distributions to our stockholders.

Interest we pay on our loan obligations will reduce cash available for distributions. If we obtain variable rate loans, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to pay distributions to you. In addition, if we need to repay existing loans during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

If we draw on a line of credit to fund repurchases or for any other reason, our financial leverage ratio could increase beyond our target.

We may seek to obtain a line of credit in an effort to provide for a ready source of liquidity to fund repurchases of shares of our common stock in the event that repurchase requests exceed net proceeds from our continuous offering. There can be no assurances that we will be able to obtain a line of credit on financially reasonable terms given the recent volatility in the capital markets. In addition, we may not be able to obtain a line of credit of an appropriate size for our business until such time as we have a substantial portfolio, or at all. If we borrow under a line of credit to fund repurchases of shares of our common stock, our financial leverage will increase and may exceed our target leverage ratio. Our leverage may remain at the higher level until we receive additional net proceeds from our continuous offering or sell some of our assets to repay outstanding indebtedness.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to pay distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to obtain additional loans. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property or discontinue insurance coverage. In addition, loan documents may limit our ability to enter into or terminate certain operating or lease agreements related to the property. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to pay distributions to our stockholders.

Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain replacement financing or our ability to sell particular properties. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets.

 

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Failure to hedge effectively against interest rate changes may materially adversely affect our ability to achieve our investment objectives.

Subject to any limitations required to maintain qualification as a REIT, we may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest rate cap or collar agreements and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements and that these arrangements may not be effective in reducing our exposure to interest rate changes. These interest rate hedging arrangements may create additional assets or liabilities from time to time that may be held or liquidated separately from the underlying property or loan for which they were originally established. We have adopted a policy relating to the use of derivative financial instruments to hedge interest rate risks related to our variable rate borrowings. This policy is set forth under “Investment Objectives and Strategy—Derivative Instruments and Hedging Activities.” Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our ability to achieve our investment objectives.

Federal Income Tax Risks

Failure to qualify as a REIT would have significant adverse consequences to us.

We are organized and operated in a manner intended to qualify as a REIT for U.S. federal income tax purposes. We first elected REIT status for our taxable year that ended December 31, 2004. Alston & Bird LLP will render an opinion to us that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that our proposed method of operations will enable us to continue meet the requirements for qualification and taxation as a REIT. This opinion will be based upon, among other things, our representations as to the manner in which we are and will be owned and the manner in which we will invest in and operate assets. However, our qualification as a REIT will depend upon our ability to meet on an on-going basis requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. Alston & Bird LLP will not review our compliance with the REIT qualification standards on an ongoing basis, and we may fail to satisfy the REIT requirements in the future. Also, this opinion represents the legal judgment of Alston & Bird LLP based on the law in effect as of the date of the opinion. The opinion of Alston & Bird LLP is not binding on the Internal Revenue Service, or IRS, or the courts. Future legislative, judicial or administrative changes to the federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT. If the IRS determines that we do not qualify as a REIT or if we qualify as a REIT and subsequently lose our REIT qualification, we will be subject to serious tax consequences that would cause a significant reduction in our cash available for distribution for each of the years involved because:

 

   

we would be subject to federal corporate income taxation on our taxable income, potentially including alternative minimum tax, and could be subject to higher state and local taxes;

 

   

we would not be permitted to take a deduction for dividends paid to stockholders in computing our taxable income; and

 

   

we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified (unless we are entitled to relief under applicable statutory provisions).

The increased taxes would cause a reduction in our NAV and in cash available for distribution to stockholders. In addition, if we do not qualify as a REIT, we will not be required to pay distributions to stockholders. As a result of all these factors, our failure to qualify as a REIT also could hinder our ability to raise capital and grow our business.

 

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To maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions.

To qualify as a REIT, we generally must distribute annually to our stockholders a minimum of 90% of our net taxable income, determined without regard to the dividends-paid deduction and excluding capital gains. We will be subject to regular corporate income taxes on any undistributed REIT taxable income each year. Additionally, we will be subject to a 4% nondeductible excise tax on any amount by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from previous years. Payments we make to our stockholders under our share repurchase plan will not be taken into account for purposes of these distribution requirements. If we do not have sufficient cash to pay distributions necessary to preserve our REIT status for any year or to avoid taxation, we may be forced to borrow funds or sell assets even if the market conditions at that time are not favorable for these borrowings or sales.

Compliance with REIT requirements may cause us to forego otherwise attractive opportunities, which may hinder or delay our ability to meet our investment objectives and reduce your overall return.

To qualify as a REIT, we are required at all times to satisfy tests relating to, among other things, the sources of our income, the nature and diversification of our assets, the ownership of our stock and the amounts we distribute to our stockholders. Compliance with the REIT requirements may impair our ability to operate solely on the basis of maximizing profits. For example, we may be required to pay distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must distribute to our stockholders at least 90% of our annual REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. There is no de minimis exception with respect to preferential dividends; therefore, if the IRS were to take the position that we paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. We have requested a private letter ruling from the IRS concluding that differences in the dividends distributed to holders of Class A shares, holders of Class M shares and holders of Class E shares, as described in the ruling, will not cause such dividends to be preferential dividends.

Compliance with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, at the end of each calendar quarter, at least 75% of our assets must consist of cash, cash items, government securities and qualified real estate assets. The remainder of our investments in securities (other than qualified real estate assets and government securities) generally cannot include more than 10% of the voting securities of any one issuer or more than 10% of the value of the outstanding securities of any one issuer. Additionally, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our assets may be represented by securities of one or more taxable REIT subsidiaries. In order to satisfy these requirements, we may be forced to liquidate otherwise attractive investments.

 

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The IRS may deem the gains from sales of our properties to be subject to a 100% prohibited transaction tax.

From time to time, we may be forced to sell assets to fund repurchase requests, to satisfy our REIT distribution requirements, to satisfy other REIT requirements or for other purposes. The IRS may deem one or more sales of our properties to be “prohibited transactions.” If the IRS takes the position that we have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business), the gain we recognize from such sale would be subject to a 100% tax. The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% tax, however there is no assurance that we will be able to qualify for the safe harbor. We do not intend to hold property for sale in the ordinary course of business, however there is no assurance that our position will not be challenged by the IRS, especially if we make frequent sales or sales of property in which we have short holding periods.

Investments outside the U.S. may subject us to additional taxes and could present additional complications to our ability to satisfy the REIT qualification requirements.

Non-U.S. investments may subject us to various non-U.S. tax liabilities, including withholding taxes. In addition, operating in functional currencies other than the U.S. dollar and in environments in which real estate transactions are typically structured differently than they are in the U.S. or are subject to different legal rules may present complications to our ability to structure non-U.S. investments in a manner that enables us to satisfy the REIT qualification requirements.

We may be subject to tax liabilities that reduce our cash flow and our ability to pay distributions to you even if we qualify as a REIT for federal income tax purposes.

We may be subject to federal and state taxes on our income or property even if we qualify as a REIT for federal income tax purposes, including:

 

   

in order to qualify as a REIT, we are required to distribute annually at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction or net capital gain) to our stockholders. If we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to corporate income tax on the undistributed income.

 

   

we will be required to pay a 4% nondeductible excise tax on the amount, if any, by which the distributions we make to our stockholders in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from previous years.

 

   

if we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we will be required to pay a tax on that income at the highest corporate income tax rate.

 

   

any gain we recognize on the sale of a property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, would be subject to the 100% “prohibited transaction” tax.

Our board of directors is authorized to revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders.

Our charter authorizes our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is not in our best interest to qualify as a REIT. In this event, we would become subject to U.S. federal income tax on our taxable income and we would no longer be required to distribute most of our net income to our stockholders, which may cause a reduction in the total return to our stockholders.

 

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You may have current tax liability on distributions you elect to reinvest in our common stock.

If you participate in our distribution reinvestment plan, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. Therefore, unless you are a tax-exempt entity, you may be forced to use funds from other sources to pay your tax liability on the reinvested dividends.

Generally, ordinary dividends payable by REITs do not qualify for reduced U.S. federal income tax rates.

The maximum U.S. federal income tax rate for “qualifying dividends” payable by U.S. corporations to individual U.S. stockholders (as such term is defined under “Federal Income Tax Considerations” below) is 15% through 2012. However, ordinary dividends payable by REITs are generally not eligible for the reduced rates and generally are taxed at ordinary income rates (the maximum individual rate being 35% through 2012).

We may be subject to adverse legislative or regulatory tax changes.

At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.

The IRS has issued Revenue Procedure 2003-65, which provides a safe harbor pursuant to which a mezzanine loan that is secured by interests in a pass-through entity will be treated by the IRS as a real estate asset for purposes of the REIT tests, and interest derived from such loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We intend to make investments in loans secured by interests in pass-through entities in a manner that complies with the various requirements applicable to our qualification as a REIT. To the extent, however, that any such loans do not satisfy all of the requirements for reliance on the safe harbor set forth in the Revenue Procedure, there can be no assurance that the IRS will not challenge the tax treatment of such loans, which could jeopardize our ability to qualify as a REIT.

If certain sale-leaseback transactions are not characterized by the IRS as “true leases,” we may be subject to adverse tax consequences.

We may purchase investments in properties and lease them back to the sellers of these properties. If the IRS does not characterize these leases as “true leases,” would not treated as receiving rents from real property with regard to such leases which could affect our ability to satisfy the REIT gross income tests.

 

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Retirement Plan Risks

If the fiduciary of an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA, fails to meet the fiduciary and other standards under ERISA, the Code or common law as a result of an investment in our stock, the fiduciary could be subject to criminal and civil penalties.

There are special considerations that apply to investing in our shares on behalf of a trust, pension, profit sharing or 401(k) plans, health or welfare plans, trusts, individual retirement accounts, or IRAs, or Keogh plans. If you are investing the assets of any of the entities identified in the prior sentence in our common stock, you should satisfy yourself that:

 

   

the investment is consistent with your fiduciary obligations under applicable law, including common law, ERISA and the Code;

 

   

the investment is made in accordance with the documents and instruments governing the trust, plan or IRA, including a plan’s investment policy;

 

   

the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Code;

 

   

the investment will not impair the liquidity of the trust, plan or IRA;

 

   

the investment will not produce “unrelated business taxable income” for the plan or IRA;

 

   

our stockholders will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and

 

   

the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA, the Code, or other applicable statutory or common law may result in the imposition of civil (and criminal, if the violation was willful) penalties, and can subject the fiduciary to equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Code, the fiduciary that authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. Investors that are governmental plans or foreign plans may be subject to laws that are similar to the aforementioned provisions of ERISA and the Code or that otherwise regulate the purchase of our shares.

If we were at any time deemed to hold “plan assets” under ERISA, stockholders subject to ERISA and the related excise tax provisions of the Internal Revenue Code may be subject to adverse financial and legal consequences.

Stockholders subject to ERISA should consult their own advisors as to the effect of ERISA on an investment in the shares. As discussed under “Certain ERISA Considerations,” we intend to conduct our operations so that our assets will not be deemed to constitute “plan assets” of stockholders that are subject to the fiduciary provisions of ERISA or the prohibited transaction rules of Section 4975 of the Code (“Plans”). If, however, we were deemed to hold “plan assets” of Plans (i) if any such Plans are subject to ERISA, ERISA’s fiduciary standards would apply to, and might materially affect, our operations and (ii) any transaction we enter into could be deemed a transaction with each Plan and transactions we might enter into in the ordinary course of business could constitute prohibited transactions under ERISA and/or Section 4975 of the Code.

 

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ESTIMATED USE OF PROCEEDS

The following table presents information about how we intend to use the proceeds raised in this offering assuming that we sell (1) the maximum primary offering amount of $2,700,000,000 and no shares under our distribution reinvestment plan and (2) the maximum primary offering amount of $2,700,000,000 and the maximum distribution reinvestment plan offering amount of $300,000,000. In each case, the table assumes that 50% of the offering proceeds in the primary offering are from the sale of Class A shares and 50% are from the sale of Class M shares. Because no selling commissions are paid with respect to shares sold in the distribution reinvestment plan, it is not necessary to make any assumptions regarding the number of Class A or Class M shares sold in the distribution reinvestment plan. We are offering up to $2,700,000,000 in shares of our common stock in our primary offering in any combination of Class A and Class M shares. We may reallocate the shares of our common stock we are offering between the primary offering and our distribution reinvestment plan. We will only use the proceeds raised in this offering for the purposes set forth in this prospectus and in a manner approved by our board of directors, who serve as fiduciaries to our stockholders.

The estimated amount of selling commissions reflected in the table below was calculated based on a purchase price per Class A share of $10.36. The actual amount of selling commissions, however, will vary from the estimated amounts shown because (1) the number of Class M shares, for which no selling commissions are paid, that we will sell is uncertain, (2) our Class A and Class M shares will each be sold at a price that varies day by day based on our daily NAV per share for that class of shares and actual selling commissions per Class A share will be a percentage of the total price per Class A share in our primary offering and (3) the selling commission may be reduced or eliminated in connection with certain categories of sales of Class A shares, such as sales for which a volume discount applies. Any reduction in selling commissions will be accompanied by a corresponding reduction in the Class A per share purchase price, but will not affect the amounts available to us for investment. Because amounts in this table are estimates, they may not accurately reflect the actual receipt or use of the offering proceeds.

We intend to use the net proceeds from this offering, which are not used to pay the fees and other expenses attributable to our operations, to (1) grow and further diversify our portfolio by making investments in accordance with our investment strategy and policies, (2) reduce borrowings and repay indebtedness incurred under various financing instruments and (3) fund repurchases under our share repurchase plan. Generally, our policy will be to pay distributions from cash flow from operations. However, our board of directors has the authority under our organizational documents, to the extent permitted by Maryland law, to fund distributions from other sources, including, without limitation, the sale of assets, borrowings, offering proceeds, and the deferral of fees and expense reimbursements by our advisor in its sole discretion. We have not established a limit on the amount of proceeds we may use from this offering to fund distributions.

 

     Maximum Primary
Offering
of $2,700,000,000
    Maximum Primary
Offering
and Distribution Reinvestment Plan
 
     Amounts      Percent     Amounts      Percent  

Gross Offering Proceeds

   $ 2,700,000,000         100.0   $ 3,000,000,000         100.0

Less:

          

Selling Commissions

     46,911,204         1.7        46,911,204         1.6   

Organization and Offering Expenses(1)

     13,159,990         0.5        13,159,990         0.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Offering Proceeds

   $ 2,639,928,806         97.8   $ 2,939,928,806         98.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

If we fund the reimbursement of our ongoing organization and offering expenses entirely out of cash flow from operations (which would not reduce the amount of capital available for investment), the percentage of gross offering proceeds available for investment for the maximum primary offering would be 98.0%. The organization and offering expense numbers shown above represent our estimates of expenses incurred in connection with the offering (other than selling commissions, the dealer manager fee and the distribution

 

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  fee), including legal, accounting, printing, mailing and filing fees and expenses, amounts paid to reimburse our dealer manager for amounts it may pay to reimburse the bona fide due diligence expenses of participating broker-dealers supported by detailed and itemized invoices, reimbursements for customary travel, lodging, meals and reasonable entertainment expenses, reimbursements to our advisor for costs in connection with preparing sales materials, the cost of educational conferences held by us and attendance fees and costs reimbursement for employees of our affiliates to attend training and educational conferences sponsored by us and seminars conducted by participating broker-dealers.

 

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INVESTMENT OBJECTIVES AND STRATEGY

Investment Objectives

Our primary investment objectives are:

 

   

to generate an attractive level of current income for distribution to our stockholders;

 

   

to preserve and protect our stockholders’ capital investments;

 

   

to achieve appreciation of our NAV over time; and

 

   

to enable stockholders to utilize real estate as an asset class in diversified, long-term investment portfolios.

We cannot assure you that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders.

Investment Strategy

The cornerstone of our investment strategy is to acquire and manage income-producing commercial real estate properties and real estate-related assets around the world. We believe this strategy will enable us to provide investors with a portfolio comprised of primarily income-producing assets that is well-diversified across property type, geographic region and industry, both in the United States and internationally. It is our belief that adding international investments to our portfolio over time will serve as an effective tool to construct a well-diversified portfolio designed to provide our stockholders with stable distributions and attractive long-term risk-adjusted returns.

We believe that our broadly diversified portfolio will benefit investors by providing:

 

   

access to attractive real estate opportunities around the world;

 

   

access to the growing supply of newly developed state-of-the art international real estate;

 

   

exposure to a diversified basket of currencies; and

 

   

further diversification of sources of income.

Since real estate markets are often cyclical in nature, our strategy will allow us to more effectively deploy capital into property types and geographic regions where the underlying investment fundamentals are relatively strong or strengthening and away from those property types and geographies where such fundamentals are relatively weak or weakening. We intend to meet our investment objectives by selecting investments across multiple property types and geographic regions to achieve portfolio stability, diversification, current income and favorable risk-adjusted returns. To a lesser degree, we also intend to invest in debt and equity interests backed principally by real estate, which we refer to collectively as “real estate-related assets.”

We believe that the evolving global commercial real estate markets may present opportunities to purchase high quality properties and other real estate-related assets at discounts to both the previous market peaks and asset replacement costs during the period in which we are investing the net proceeds of this offering. We also believe that making these investments near the bottom of this financial cycle may position our investment portfolio to realize enhanced income and value appreciation during the expected recovery of the economies of the United States and our global target markets.

We will continue to leverage LaSalle’s broad commercial real estate research and strategy platform and capabilities to employ a research-based investment philosophy focused on building a portfolio of commercial

 

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properties and real estate-related assets that we believe have the potential to provide stable income streams and outperform market averages over an extended holding period. Furthermore, we believe that having access to LaSalle and Jones Lang LaSalle’s international organization and platform, with real estate professionals living and working full time throughout our global target markets, will be a valuable resource to us when considering and executing upon international investment opportunities.

Investment Management Capabilities: The LaSalle Investment Management Platform

LaSalle Investment Management, Inc., our advisor, is a registered investment advisor with the SEC. Headquartered in Chicago, Illinois, our advisor is the U.S. investment management arm of the global LaSalle investment management platform. LaSalle was established and began managing real estate assets for institutional clients in 1980 and has become one of the world’s largest managers of institutional capital invested in real estate and real estate-related assets. LaSalle specializes in providing comprehensive multi-disciplinary real estate investment services to a broad range of institutional and individual investors, including pension funds, foundations, endowments, corporations, insurance companies, sovereign wealth funds and money managers for high net worth individuals. LaSalle has over 30 years of real estate investment experience in public and private real estate markets in North America and Europe and more than a decade of experience in Asia Pacific. As of September 30, 2011, LaSalle managed approximately $47.9 billion of public and private real estate assets and had approximately 690 employees in 26 offices in 17 countries. Pursuant to the advisory agreement between us and our advisor, and as described under “Management—The Advisory Agreement,” our advisor is responsible for managing our affairs on a day-to-day basis and for identifying, making and managing acquisitions on our behalf.

We believe that access to LaSalle’s investment expertise, research capabilities and property acquisition sourcing and due diligence capabilities will enable us to successfully execute our investment strategy and objectives. LaSalle has substantial experience in acquiring, owning, managing, financing and operating commercial real estate across diverse property types around the world as well as significant experience in asset allocation across a diverse range of portfolio types. In sourcing and evaluating potential investment opportunities for our portfolio, our advisor will utilize its regional investment committees established by LaSalle in each region of the world in which it operates. These committees are comprised of senior members of its global management organization, each of whom has between 14 and 30 years of real estate investment experience. See “Management—Investment Committees.” Where appropriate, our advisor will leverage the worldwide resources of Jones Lang LaSalle, its parent company and our sponsor, to serve our investment goals and objectives. We believe that the local market knowledge and expertise of Jones Lang LaSalle’s international network of real estate professionals will provide us with a significant competitive advantage in executing our investment strategy.

Global Real Estate Services Capabilities: Jones Lang LaSalle

Jones Lang LaSalle Incorporated (NYSE: JLL), our sponsor and the parent company of our advisor, is a global real estate services firm specializing in commercial property management, leasing and investment management with a portfolio of over 1.8 billion square feet worldwide. Jones Lang LaSalle provides real estate and money management services to leading corporate and institutional owners and occupiers of real estate around the world. As of September 30, 2011, Jones Lang LaSalle had over 200 corporate offices and operations in more than 1,000 locations in 70 countries and has approximately 40,300 employees worldwide. Where appropriate, our advisor will leverage the global resources of Jones Lang LaSalle, its parent company and our sponsor, to serve our investment goals and objectives. We believe that the local market knowledge developed globally and shared by Jones Lang LaSalle’s real estate professionals with our advisor provides us with a key competitive strength in connection with our global real estate investment and management activities. Our advisor also hires our sponsor for property management, leasing, financing, capital markets and other services at certain of our properties where our advisor determines that our sponsor’s credentials in the property type and geographic market are superior to third party alternatives.

 

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As of the date of commencement of this offering, affiliates of Jones Lang LaSalle will have invested an aggregate of $60.2 million in our company through the purchase of shares of our common stock. See “Stock Ownership of Certain Beneficial Owners—Ownership by Our Sponsor and its Affiliates” for a description of the terms of these investments. As a result of this significant investment in us, Jones Lang LaSalle has a strong economic incentive to support our company, unlike other public, non-listed REITs whose sponsors have made a minimal investment and, consequently, are less aligned with the interests of their stockholders. We believe that our sponsor’s status as a publicly-traded, investment grade global corporation provides us with financial and reputational competitive advantages in addition to access to Jones Lange LaSalle’s global real estate services platform.

Real Estate as a Diversifying Asset Class

We make direct investments in real properties in multiple sectors consisting primarily of office, retail, industrial and multifamily properties. Other real property types may include, but are not limited to hospitality, student housing, medical office, mixed-use and other property types. While substantially all of our real property investments are currently in the United States, we anticipate that that a significant portion of our investments may be located outside of the United States following the investment of the proceeds of this offering.

Historically, real estate has offered attractive returns compared to bonds, and lower volatility compared to equities, which makes it an attractive asset class to consider as a component of a diversified, long-term investment portfolio. Individual and institutional investors have embraced real estate as a significant asset class for purposes of asset allocations within their investment portfolios. Institutional investors include an allocation to real estate in their portfolios for a variety of reasons or goals, which generally include improving portfolio diversification, reducing overall portfolio risk and volatility, attempting to hedge against inflation, or enhancing risk-adjusted returns. Survey data reported by PREA indicates that investment in real estate by pension plans has been steadily increasing since 2000 with a significant percentage of the pension plans having a target allocation to real estate of 10% or more of their overall investment portfolios. Furthermore, according to a report published in 2011 by NAREIT, an optimized portfolio combining a blend of private direct real estate and publicly traded REITs produced better risk-adjusted returns than either private direct real estate or publicly traded REITs alone. Blended portfolios resulted in positive average annual returns for all rolling five-year holding periods over the past 22 years, even during periods of dramatic property valuation declines (e.g. 2008, 2009, 2010).

While investing in REITs whose shares are listed on a national securities exchange is one alternative for investing in real estate, shares of listed REITs generally fluctuate in value with the stock market as a whole. Alternatively, a significant number of public and corporate pension plan sponsors as well as endowments, foundations and other institutions have allocated a portion of their portfolio to direct investments in real estate either through separate account arrangements or commingled funds. “Direct investments” refers to owning real estate through an investment vehicle that does not have its equity interests listed for trading on a national securities exchange.

Direct investments in real estate (particularly those held by institutional investors) generally differ from listed REITs in that the value of direct real estate investments is typically based directly on professional assessments of the fair value of the real estate owned by the entity. In contrast, shares of listed REITs are priced by the public trading market, which generally causes a company’s stock price to fluctuate based on factors such as supply (number of sellers) and demand (number of buyers) of shares as well as other market forces.

Industry benchmarks that track the value of direct investments in real estate properties have demonstrated a low correlation with the benchmarks for traditional asset classes, such as publicly traded stocks and bonds. Academic and empirical studies have shown that utilizing lower correlated assets in a diversified, long-term investment portfolio can increase portfolio efficiency and may generate higher total returns while decreasing overall risk because the various asset classes may react to changing market conditions differently.

 

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We believe that individual investors can benefit from adding a diversified real estate component to their investment portfolios. As such, our objective is to offer a similar investment option to a broad universe of investors through our continuous public offering.

Investment Portfolio Allocation Targets

Our board of directors has adopted investment guidelines for our advisor to implement and actively monitor in order to allow us to achieve and maintain diversification in our overall investment portfolio. Our board of directors will formally review at a duly called meeting our investment guidelines on an annual basis and our investment portfolio on a quarterly basis or, in each case, more often as they deem appropriate. Changes to our investment guidelines must be approved by our board of directors and do not require notice to or the vote of our stockholders.

Following our initial ramp-up period, as described below, we will seek to invest:

 

   

up to 80% of our assets in properties;

 

   

up to 25% of our assets in real estate-related assets; and

 

   

up to 15% of our assets in cash, cash equivalents and other short-term investments.

Notwithstanding the above, the actual percentage of our portfolio that is invested in each investment type may from time to time be outside the target levels provided above due to factors such as a large inflow of capital over a short period of time, a lack of attractive investment opportunities or an increase in anticipated cash requirements for repurchase requests.

During the period until we have raised substantial proceeds in this offering and our total NAV has reached $800 million, which we refer to as our “ramp-up period,” we will balance the goal of achieving a more diversified portfolio with the goal of reducing our leverage. Following the end of the ramp-up period, we believe that the size of our portfolio of investments should be sufficient for our advisor to adhere more closely to our investment guidelines, although we cannot predict how long our ramp-up period will last and cannot provide assurances that we will be able to raise sufficient proceeds in this offering to accomplish this objective. During our ramp-up period, the percentages of our gross assets comprised of various categories of assets may fluctuate as we identify investment opportunities and make investments with a combination of proceeds from this offering and proceeds from borrowings.

Investments in Properties

We generally invest in properties in large metropolitan areas that are well-leased with a stable tenant base and predictable income. However, we may make investments in properties with other characteristics if we believe that the investments have the potential to enhance portfolio diversification or investment returns, as further described under “—Value Creation Opportunities.”

We intend to manage risk through constructing and managing a broadly diversified portfolio of properties in developed markets around the world. We believe that a broadly diversified investment portfolio may offer investors significant benefits for a given level of risk relative to a more concentrated investment portfolio. In addition, we believe that assembling a diversified tenant base by investing in multiple properties and property types across multiple markets and geographic regions may mitigate the economic impacts associated with tenants potentially defaulting under their leases, since lease revenues represent the primary source of income from our real estate investments.

We will also focus on acquiring and managing a portfolio of properties that provides tenants and residents with modern functionality and location desirability in order to avoid near-term obsolescence. We will generally

 

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invest in well-designed buildings that we believe present an attractive appearance, have been and are properly maintained and require minimal capital improvements in the near term. We generally do not intend to acquire higher risk and higher return properties in need of significant renovation, redevelopment or repositioning; however, we may invest in these types of properties if we believe attractive risk-adjusted investment returns can be achieved through proactive management techniques or value-add programs, as further described under “—Value Creation Opportunities.”

Our board of directors is responsible for determining the consideration we pay for each property we acquire. However, our board has adopted investment guidelines that delegate this authority to our advisor, so long as our advisor complies with the investment guidelines. The investment guidelines limit the types of assets that may be purchased and sold and, depending on the type of transaction, limit the transaction amounts that may be executed without the specific approval of our board. Our board may change from time to time the scope of authority delegated to our advisor.

Property Types

We have and plan to continue to primarily invest in the following property types:

Office Properties. Office sector properties are generally categorized based upon location and quality. Buildings may be located in Central Business Districts, or CBDs, or suburbs. Buildings are also classified by general quality and size, ranging from Class A properties which are generally large-scale buildings of the highest-quality to Class C buildings which are below investment grade. We intend to invest in Class A or B office properties that are near executive housing, have sufficient transportation access or are located within well-established suburban office/business parks or CBDs. We also anticipate that a portion of the office properties in which we invest will be medical office and healthcare related facilities. We expect the duration of our office leases to be generally between five to ten years which can help mitigate the volatility of our portfolio’s income.

Retail Properties. The retail sector is comprised of five main formats: neighborhood retail, community centers, regional centers, super-regional centers and single-tenant stores. Location, convenience, accessibility and tenant mix are generally considered to be among the key criteria for successful retail investments. Retail leases tend to range from three to five years for small tenants and ten to fifteen years for large anchor tenants. Leases, particularly for anchor tenants, may include a base payment plus a percentage of retail sales. Income and population density are generally considered to be key drivers of local retail demand. We will seek investments in retail properties that are located within densely populated residential areas with favorable demographic characteristics and near other retail and service amenities.

Industrial Properties. Industrial properties are generally categorized as warehouse/distribution centers, research and development facilities, flex space or manufacturing. The performance of industrial properties is typically dependent on the proximity to economic centers and the movement of global trade and goods. In addition, industrial properties typically utilize a triple-net lease structure pursuant to which the tenant is generally responsible for property operating expenses in addition to base rent which can help mitigate the risks associated with rising expenses. We intend to invest in industrial properties that are located in major distribution hubs and near transportation modes such as port facilities, airports, rail lines and major highway systems.

Multifamily Properties. Multifamily properties are generally defined as having five or more dwelling units that are part of a single complex and offered for rental use as opposed to detached single-family residential properties. There are three main types of multifamily properties—garden-style (mostly one-story apartments), low-rise and high-rise. Apartments generally have the lowest vacancy rates of any property type, with the better performing properties typically located in urban markets or locations with strong employment and demographic dynamics. We plan to invest in multifamily properties that are located in or near employment centers with favorable potential for employment growth and conveniently situated with access to transportation and retail and service amenities. Traditional multifamily properties are generally leased by apartment unit to individual tenants for one year terms. We also anticipate that we will continue to own and invest in student apartment communities which are typically leased on an individual lease basis by bed and for a term of one year or less.

 

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Global Target Markets

In general, we seek to invest in properties in well-established locations within large metropolitan areas and with the potential for above average population or employment growth. Although we have and expect to continue to focus on investing primarily in developed locations throughout the United States, we anticipate that we will also invest a substantial portion of the proceeds of this offering in markets outside of the United States. We believe that an allocation to international investments that meet our investment policies will contribute meaningfully to the diversification of our portfolio, the ability for us to identify favorable income-generating investments and the potential for achieving attractive long-term returns. We believe that opportunities for attractive risk-adjusted returns exist both within the United States and globally. Most of our investments outside of the United States will be in core properties in stabilized, well-developed markets within Europe and the Asia Pacific region. We believe that our strategy to acquire properties on a global basis will provide for a well-diversified portfolio that will generate attractive current returns and optimize long-term value for our stockholders.

We believe that having access to our sponsor’s global real estate services business, with over 40,300 employees in 1,000 locations in 70 countries will be a valuable resource to our advisor when sourcing and evaluating potential international investment opportunities. However, we cannot assure investors that we will be able to successfully manage the various risks associated with, and unique to, investing in foreign markets.

Ownership Interest

Although we generally seek to acquire the entire equity ownership interest in properties in which we invest, we also have entered and may continue to enter into joint ventures, general partnerships, co-tenancies and other participation arrangements with other investors to acquire properties. In most cases in which less than the entire equity ownership interest is acquired, we seek to obtain critical elements of control. We will generally acquire fee simple interests for the properties (in which we own both the land and the building improvements), but may consider leased fee and leasehold interests if we believe the investment is consistent with our investment strategy and objectives.

Tenancy and Leasing

In general, we will seek a favorable mix of tenants in properties in our portfolio to achieve greater economic diversification than is afforded by geographic and property type considerations alone. We will strive to maintain a stable blend of national and international credit tenants and creditworthy regional and local tenants. Tenancy criteria and diversification are applied at the property level as well as at the portfolio level.

The length of tenancy generally will reflect local market conditions for each property. However, if possible, we will seek to negotiate longer-term leases to reduce the cash flow volatility associated with lease rollovers, provided that contractual rent increases are included. We will attempt to manage lease rollover risk on a portfolio basis. Where appropriate, we will also seek leases that provide for operating expenses, or expense increases, to be paid by the tenants.

Due Diligence

Our advisor will perform a comprehensive due diligence review on each property that it proposes to purchase on our behalf. As part of this review, our advisor will obtain an environmental site assessment for each property (which at a minimum includes a Phase I assessment) and structural condition reports. Our advisor will not continue consideration of the purchase of any property unless it is generally satisfied with the physical and environmental status of the property as well as the property’s tenancy. Our advisor will also generally seek to condition our obligation to acquire the property on the delivery and verification of certain documents from the seller or developer, including, where appropriate:

 

   

plans and specifications;

 

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surveys;

 

   

evidence of marketable title;

 

   

title and liability insurance policies;

 

   

asbestos, soil, physical, structural and engineering reports;

 

   

evidence of compliance with zoning, the Americans with Disabilities Act, and fair housing laws;

 

   

tenant leases and other relevant legal documents; and

 

   

financial statements covering recent operations of properties having operating histories.

Value Creation Opportunities

We may periodically seek to enhance investment returns through various value creation opportunities. While there are no specific limitations on the nature or amount of these types of investments, in the aggregate they are not expected to materially change the risk profile of the overall portfolio. Examples of likely value creation investments include properties with significant leasing risk, forward purchase commitments, development/construction opportunities and nontraditional or mixed-use property types. These investments generally have a higher risk and higher return profile than traditional properties.

Disposition Policies

We anticipate that we will hold most of our properties for an extended period. However, we may determine to sell a property before the end of its anticipated holding period. We will monitor each investment within the portfolio and the overall portfolio composition for appropriateness in meeting our investment objectives. Our advisor may determine to sell a property before the end of its anticipated holding period if:

 

   

an opportunity has arisen to enhance overall investment returns by reallocating capital through sale of the property;

 

   

there are diversification benefits associated with disposing of the property and rebalancing our investment portfolio;

 

   

there exists a need to generate liquidity to satisfy repurchase requests, to pay distributions to our stockholders or for working capital;

 

   

in the judgment of our advisor, the value of the property might decline or underperform as compared to our investment objectives;

 

   

an opportunity has arisen to pursue a more attractive investment;

 

   

the property was acquired as part of a portfolio acquisition and does not meet our investment guidelines; or

 

   

in the judgment of our advisor, the sale of the property is in our best interests.

Generally, we will reinvest proceeds from the sale, financing or other disposition of properties in a manner consistent with our investment strategy, although we may be required to distribute such proceeds to the stockholders in order to comply with REIT requirements or in other instances.

Investments in Real Estate-Related Assets

We may invest a portion of our portfolio in real estate-related assets other than properties. These assets may include the common and preferred stock of publicly-traded real estate-related companies, preferred equity interests, mortgage loans and other real estate-related equity and debt instruments. We expect that up to 25% of

 

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our overall portfolio may be invested in real estate-related assets. We believe that our advisor’s ability to acquire real estate-related assets in conjunction with acquiring a diverse portfolio of properties affords us additional liquidity and further diversification, which provides greater financial flexibility and discretion to construct an investment portfolio designed to achieve our investment objectives. Our charter requires that any investment in equity securities (other than equity securities traded on a national securities exchange or included for quotation on an inter-dealer quotation system) not within the specific parameters of our investment guidelines adopted by our board of directors must be approved by a majority of our directors.

We may invest in mortgage loans consistent with the requirements for qualification as a REIT. We may originate or acquire interests in mortgage loans, generally on the same types of properties we might otherwise buy. These mortgage loans may pay fixed or variable interest rates or have “participating” features described below. Normally, our mortgage loans will be secured by income-producing properties. They usually will be non-recourse, which means they will not be the borrower’s personal obligations. We expect that most will be first mortgage loans, with first priority liens on the property. These loans may provide for payments of principal and interest or may provide for interest-only payments, with a balloon payment at maturity.

We may make mortgage loans that permit us to participate in the revenues from or appreciation of the underlying property consistent with the rules applicable to qualification as a REIT. These participations will let us receive additional interest, usually calculated as a percentage of the gross income the borrower receives from operating, selling or refinancing the property above cost. We may also receive an option to buy an interest in the property securing the participating loan.

Subject to the percentage of ownership limitations and gross income and asset requirements required for REIT qualification, we may invest in equity securities of companies engaged in real estate activities, including for the purpose of exercising control over such entities. Companies engaged in real estate activities may include, for example, REITs that either own properties or make real estate loans, real estate developers, entities with substantial real estate holdings such as limited partnerships, funds and other commingled investment vehicles, and other companies whose products and services are related to the real estate industry, such as mortgage lenders or mortgage servicing companies. We may acquire all or substantially all of the securities or assets of companies engaged in real estate activities where such investment would be consistent with our investment policies and our status as a REIT. We may also acquire exchange traded funds and mutual funds focused on REITs and real estate companies. In any event, we do not intend that our investments in securities will require us to register as an investment company under the Investment Company Act, and we intend to generally divest appropriate securities before any such registration would be required.

Cash, Cash Equivalents and Other Short-Term Investments

We intend to invest up to 15% of our assets in cash, cash equivalents and other short-term investments. These types of investments may include the following, to the extent consistent with our qualification as a REIT:

 

   

money market instruments, cash and other cash equivalents (such as high-quality short-term debt instruments, including commercial paper, certificates of deposit, bankers’ acceptances, repurchase agreements, interest- bearing time deposits and credit rated corporate debt securities);

 

   

U.S. government or government agency securities; and

 

   

credit rated corporate debt or asset-backed securities of U.S. or foreign entities, or credit rated debt securities of foreign governments or multi-national organizations.

Other Investments

We may, but do not presently intend to, make investments other than as previously described. At all times, we intend to make investments in such a manner consistent with maintaining our qualification as a REIT under the Code. We do not intend to underwrite securities of other issuers.

 

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Borrowing Policies

We intend to use financial leverage to provide additional funds to support our investment activities. Historically, we have attempted to limit our overall portfolio leverage to 65% at the time we made our investments (portfolio leverage is calculated as our share of the current property debt balance divided by the fair value of all our real estate investments). However, declining commercial property values have caused our portfolio leverage to increase above our target leverage ratio of 65%. Based upon the valuation declines in our portfolio, our loan-to-value as of September 30, 2011 was approximately 78%. During the ramp-up period, we intend to use modest amounts of leverage, if any, to finance our new acquisitions in order to reduce our overall portfolio leverage. We also intend to use a portion of the net proceeds from this offering to retire some of our property-level borrowings. After the completion of our ramp-up period, we expect that we will maintain a leverage ratio of between approximately 30% and 50% of the gross value of our assets, inclusive of property and entity level debt.

If we decide to obtain a line of credit and are able to do so, borrowings under the line may be used to fund acquisitions or for any other corporate purpose. We currently do not intend to use any borrowings under any line of credit that we may obtain to fund repurchases of our shares, but we may determine to do so in the future.

Our actual leverage level will be affected by a number of factors, some of which are outside our control. Significant inflows of proceeds from the sale of shares of our common stock will generally cause our leverage as a percentage of the gross value of our assets or our leverage ratio, to decrease, at least temporarily, while significant outflows of equity as a result of repurchases of shares of our common stock will generally cause our leverage ratio to increase, at least temporarily. Our leverage ratio will also increase or decrease with decreases or increases, respectively, in the value of our portfolio. If we borrow under a line of credit, our leverage would increase and may exceed our target leverage. In such cases, our leverage may remain at the higher level until we receive additional net proceeds from our continuous offering or sell some of our assets to repay outstanding indebtedness.

Our board of directors will review our aggregate borrowings at least quarterly. In connection with such review, our board of directors may determine to modify our financial leverage policy in light of then-current economic conditions, relative costs of debt and equity capital, fair values of our properties, general conditions in the market for debt and equity securities, growth and investment opportunities or other factors. If we obtain a line of credit, we will consider actual borrowings when determining whether or not we are at our leverage target, but not unused borrowing capacity. If, therefore, we are within our target leverage ratio range of between 30% and 50% and we borrow additional amounts under a line of credit, or if the value of our portfolio decreases, our leverage could exceed 30% to 50% of the gross value of our assets. In the event that our leverage ratio exceeds our target range, regardless of the reason, we will thereafter endeavor to manage our leverage back down to within our target range.

There is no limitation on the amount we may invest in any single improved real property. However, we are precluded from borrowing more than approximately 75% of the sum of the cost of our investments (before non-cash reserves and depreciation), which is based upon the limit specified in our charter that borrowing may not exceed 300% of the cost of our net assets. “Net assets” is defined as our total assets other than intangibles valued at cost (prior to deducting depreciation and amortization, reserves for bad debts and other non-cash reserves) less total liabilities. However, we may temporarily borrow in excess of these amounts if such excess is approved by a majority of our board, including a majority of our independent directors, and disclosed to stockholders in our next quarterly report, along with justification for such excess. In such event, we will review our debt levels at that time and take action to reduce any such excess as soon as practicable. We are currently in compliance with the charter limitations on our indebtedness.

Our charter prohibits us from obtaining loans from any of our directors, our advisor, our sponsor or any of their affiliates, unless approved by a majority of our board of directors (including a majority of our independent directors) not otherwise interested in the transaction as fair, competitive and commercially reasonable and on terms and conditions not less favorable than comparable loans between unaffiliated parties under the same or similar circumstances.

 

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Transactions with Affiliates

We may not acquire or lease any properties from our directors, our advisor, our sponsor or any of their affiliates without a determination by a majority of our board of directors (including a majority of our independent directors) not otherwise interested in the transaction that the terms of the transaction are fair and reasonable and at a price to us no greater than the cost of the property to such director, our sponsor, our advisor or affiliate thereof unless there is substantial justification for such excess amount and such excess is reasonable. In all cases in which real property is acquired from our advisor, our sponsor, any of our directors or any of their affiliates, the fair market value of the property shall be determined by an independent expert selected by our independent directors not otherwise interested in the transaction.

In addition, we may not make any loans to our directors, our advisor, our sponsor or any of their affiliates except for certain mortgages described in”—Charter Imposed Limitations” below or loans to wholly-owned subsidiaries and we may not sell or lease assets to our directors, our advisor, our sponsor or any of their affiliates unless a majority of our board of directors (including a majority of our independent directors) not otherwise interested in the transaction approve the transaction as fair and reasonable to us. Our charter also prohibits us from investing in mortgage loans or making mortgage loans in which the transaction is with our advisor, our sponsor, our directors or any of their affiliates unless an appraisal is obtained from an independent appraiser or that are subordinate to any mortgage or equity interest of our advisor, our sponsor, our directors or any of their affiliates.

Our charter prohibits us from borrowing funds from our advisor, our sponsor, any of our directors or any of their affiliates unless approved by a majority of our board of directors (including a majority of our independent directors) not otherwise interested in the transaction as fair, competitive and commercially reasonable and on terms and conditions not less favorable than comparable loans between unaffiliated parties under the same or similar circumstances. This prohibition on loans will only apply to advances of cash that are commonly viewed as loans, as determined by the board of directors. By way of example only, the prohibition on loans would not restrict advances of cash for legal expenses or other costs incurred as a result of any legal action for which indemnification is being sought, nor would the prohibition limit our ability to advance reimbursable expenses incurred by directors or officers, our advisor, our sponsor or their affiliates.

We may not enter into joint venture or co-ownership arrangements with our sponsor, our advisor, any of our directors or any of their affiliates, unless a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction determine that the transaction is fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint venturers, in each case consistent with the limitations otherwise applicable to transactions with our advisor and their affiliates described above.

Derivative Instruments and Hedging Activities

In the normal course of our business, we are exposed to the effect of interest rate changes, price changes and currency fluctuations and may seek to limit these risks by following established risk management policies and procedures including the use of derivatives. To mitigate exposure to variability in interest rates, derivatives may be used primarily to fix the rate on debt based on floating-rate indices and manage the cost of borrowing obligations.

We may use a variety of commonly used derivative products, including interest rate swaps, caps, collars, floors and currency hedging. We have a policy of entering into contracts with only major financial institutions based upon minimum credit ratings and other factors. We will periodically review the effectiveness of each hedging transaction. We will attempt to conduct our hedging activities in a manner consistent with the REIT qualification requirements.

 

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Investment Company Act Considerations

We intend to conduct our operations so that we are not an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

Rule 3a-1 under the Investment Company Act, however, generally provides that, notwithstanding Section 3(a)(1)(C) of the Investment Company Act, an issuer will not be deemed to be an “investment company” under the Investment Company Act provided that (1) it does not hold itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, and (2) on an unconsolidated basis except as otherwise provided, no more than 45% of the value of its total assets, consolidated with the assets of any wholly-owned subsidiary, (exclusive of U.S. government securities and cash items) consists of, and no more than 45% of its net income after taxes, consolidated with the net income of any wholly owned subsidiary, (for the last four fiscal quarters combined) is derived from, securities other than U.S. government securities, securities issued by employees’ securities companies, securities issued by majority owned subsidiaries of such company that are not investment companies nor relying on the exclusion from the definition of investment company in Section 3(b)(3), Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act and securities issued by companies that are controlled primarily by such company, are not investment companies and through which such company engages in a business other than that of investing, reinvesting or trading in securities. We believe that we and our subsidiaries will satisfy this exclusion and we will monitor our holdings to ensure continuing and ongoing compliance with Rule 3a-1.

In addition, we believe that we will not be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, we will be primarily engaged in the non-investment company business, namely the business of purchasing or otherwise acquiring real property, mortgages and other interests in real estate.

Finally, to maintain compliance with the Investment Company Act exceptions, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and that may be important to our investment strategy. Our advisor will continually review our investment activity to attempt to ensure that we will not be regulated as an investment company. See “Risk Factors—Risks Related Our Corporate Structure—Your investment return may be reduced if we are deemed to be an investment company under the Investment Company Act.”

Charter-Imposed Investment Limitations

Our charter places numerous limitations on us with respect to the manner in which we may invest our funds prior to a listing of our common stock. Until our common stock is listed, we may not:

 

   

make investments in unimproved real property or indebtedness secured by a deed of trust or mortgage loans on unimproved real property in excess of 10% of our total assets. Unimproved real property means a property in which we have an equity interest that was not acquired for the purpose of

 

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producing rental or other income, that has no development or construction in process and for which no development or construction is planned, in good faith, to commence within one year;

 

   

invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real property;

 

   

invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title;

 

   

make or invest in individual mortgage loans (excluding any investments in mortgage pools, commercial mortgage-backed securities or residential mortgage-backed securities) unless an appraisal is obtained concerning the underlying property except for those mortgage loans insured or guaranteed by a government or government agency. In cases where a majority of our independent directors determines and in all cases in which the transaction is with our advisor, our sponsor, any of our directors or any of their affiliates, the appraisal shall be obtained from an independent appraiser. We will maintain the appraisal in our records for at least five years and it will be available for inspection and duplication by stockholders. We will also obtain a mortgagee’s or owner’s title insurance policy as to the priority of the mortgage;

 

   

make or invest in mortgage loans that are subordinate to any lien or other indebtedness of any of our directors, our sponsor, our advisor or their affiliates;

 

   

issue (1) equity securities redeemable solely at the option of the holder (except that stockholders may offer their shares of our common stock to us pursuant to our share repurchase plan), (2) debt securities unless the historical debt service coverage (in the most recently completed fiscal year) as adjusted for known changes is anticipated to be sufficient to properly service that higher level of debt or (3) options or warrants to the directors, our sponsor, our advisor, or any of their affiliates, except on the same terms as such options or warrants, if any, are sold to the general public; options or warrants may be issued to persons other than the directors, our sponsor, our advisor, or any of their affiliates, but not at exercise prices less than the fair value of the underlying securities on the date of grant and not for consideration (which may include services) that in the judgment of the independent directors has a fair value less than the value of the option or warrant on the date of grant;

 

   

make or invest in mortgage loans, including construction loans but excluding any investment in commercial mortgage-backed securities or residential mortgage-backed securities, on any one real property if the aggregate amount of all mortgage loans on such real property would exceed an amount equal to 85% of the appraised value of such real property as determined by appraisal unless substantial justification exists because of the presence of other underwriting criteria;

 

   

issue equity securities on a deferred payment basis or other similar arrangement;

 

   

engage in the business of securities trading, underwriting or the agency distribution of securities issued by other persons;

 

   

make any investment that we believe will be inconsistent with our objectives of qualifying and remaining qualified as a REIT unless and until our board of directors determines, in its sole discretion, that REIT qualification is not in our best interests; or

 

   

acquire interests or equity securities in any entity holding investments or engaging in activities prohibited by our charter except for investments in which we hold a non-controlling interest or investments in any entity having securities listed on a national securities exchange or included for quotation on an interdealer quotation system.

 

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OUR REAL ESTATE INVESTMENTS

Real Estate Portfolio

Our investments in real estate assets as of September 30, 2011 consisted of our interest in properties that are consolidated in our consolidated financial statements, including interests in seven joint ventures, which we refer to as our consolidated properties, and interests in two additional joint ventures that own real estate, which we refer to as our unconsolidated properties. As of September 30, 2011, our real estate portfolio was comprised of interests in 35 properties located in 12 states and one property in Canada and was approximately 93% leased. Our operating real estate portfolio includes an aggregate original investment amount of $959.3 million and consists of interests in:

 

   

22 office properties, aggregating approximately 1,925,000 net rentable square feet, our interests in which represent approximately 46% of the aggregate estimated market value of our portfolio;

 

   

four retail properties, aggregating approximately 1,479,000 net rentable square feet, our interests in which represent approximately 24% of the aggregate estimated market value of our portfolio;

 

   

three industrial properties, aggregating approximately 1,365,000 net rentable square feet, our interests in which represent approximately 7% of the aggregate estimated market value of our portfolio; and

 

   

seven multifamily properties, aggregating approximately 2,337,000 net rentable square feet, our interests in which represent approximately 23% of the aggregate estimated market value of our portfolio.

The following tables provide information regarding our consolidated and unconsolidated real estate properties as of September 30, 2011. All properties are 100% owned unless otherwise specified.

Consolidated Properties

 

Property Name (1)

   Location    Net Rentable
Square Feet
     Leased as of
September 30,
2011
    Original
Investment
Amount (in
thousands)
     % of Minimum Base
Rent as of
September 30,
2011 (2)
 

Monument IV at Worldgate

   Herndon, VA      228,000         100   $ 59,600         6.5

CHW Medical Office Portfolio

             

300 Old River Road

   Bakersfield, CA      37,000         100        6,800         0.8   

500 Old River Road

   Bakersfield, CA      30,000         80        5,600         0.6   

500 West Thomas Road

   Phoenix, AZ      169,000         86        32,000         2.8   

1500 South Central Ave

   Glendale, CA      37,000         71        7,900         0.8   

14600 Sherman Way

   Van Nuys, CA      50,000         76        9,100         1.1   

14624 Sherman Way

   Van Nuys, CA      53,000         72        10,400         0.8   

18350 Roscoe Blvd

   Northridge, CA      68,000         87        14,000         1.7   

18460 Roscoe Blvd

   Northridge, CA      25,000         100        5,100         0.6   

18546 Roscoe Blvd

   Northridge, CA      41,000         82        7,800         1.1   

4545 East Chandler

   Chandler, AZ      49,000         57        7,800         0.6   

485 South Dobson

   Chandler, AZ      43,000         76        10,000         0.7   

1501 North Gilbert

   Gilbert, AZ      38,000         69        7,300         0.6   

116 South Palisade

   Santa Maria, CA      33,000         99        4,900         0.6   

525 East Plaza

   Santa Maria, CA      44,000         77        9,700         0.9   

10440 East Riggs

   Chandler, AZ      40,000         54        5,400         0.5   

Metropolitan Park North(3)

   Seattle, WA      179,000         100        89,200         7.6   

4 Research Park Drive

   St. Charles, MO      60,000         100        11,300         1.2   

36 Research Park Drive

   St. Charles, MO      81,000         100        17,300         1.6   

Canyon Plaza

   San Diego, CA      199,000         100        55,000         5.2   

Railway Street Corporate Centre

   Calgary, Canada      135,000         100        42,600         3.8   
     

 

 

      

 

 

    

 

 

 

Total Office

        1,639,000         $ 418,800         40.1

 

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Property Name (1)

   Location    Net Rentable
Square Feet
     Leased as of
September 30,
2011
    Original
Investment
Amount (in
thousands)
     % of Minimum Base
Rent as of
September 30, 2011 (2)
 

Marketplace at Northglenn(3)

   Northglenn, CO      439,000         85   $ 91,500         6.9

Stirling Slidell Shopping Centre

   Slidell, LA      139,000         72        23,100         1.7   

The District at Howell Mill(4)

   Atlanta, GA      306,000         100        69,200         7.1   
     

 

 

      

 

 

    

 

 

 

Total Retail

        884,000         $ 183,800         15.7

Georgia Door Sales Distribution Center

   Austell, GA      254,000         76   $ 8,500         0.6

105 Kendall Park Lane

   Atlanta, GA      409,000         100        18,800         1.7   

4001 North Norfleet Road

   Kansas City, MO      702,000         100        37,900         3.5   
     

 

 

      

 

 

    

 

 

 

Total Industrial

        1,365,000         $ 65,200         5.8

Station Nine Apartments

   Durham, NC      312,000         100   $ 56,400         5.5

Cabana Beach San Marcos(5)(6)

   San Marcos, TX      258,000         95        23,400         5.4   

Cabana Beach Gainesville(5)(6)

   Gainesville, FL      598,000         92        58,700         8.2   

Campus Lodge Athens(5)(6)

   Athens, GA      229,000         99        16,400         3.1   

Campus Lodge Columbia(5)(6)

   Columbia, MO      256,000         100        19,600         4.9   

The Edge at Lafayette(5)(6)

   Lafayette, LA      207,000         100        20,900         4.3   

Campus Lodge Tampa(5)(6)

   Tampa, FL      477,000         99        36,500         7.0   
     

 

 

      

 

 

    

 

 

 

Total Multifamily

        2,337,000         $ 231,900         38.4

Total

        6,225,000         $ 899,700         100.0
     

 

 

      

 

 

    

 

 

 

 

(1) As of September 30, 2011, no individual property’s book value exceeded 10% of our total assets, and no individual property’s gross revenues exceeded 10% of our gross revenues.
(2) Percent of minimum base rent represents the property’s base rent (excluding above- and below-market lease amortization, tenant recoveries, percentage rents and straight-line rental income) divided by our total base rent for the nine months ended September 30, 2011.
(3) We expect that we will ultimately relinquish our ownership of this property to the lender in a deed in lieu of foreclosure or other alternative transaction including foreclosure in satisfaction of the mortgage.
(4) We own an 88% interest in the joint venture that owns a fee interest in this property.
(5) This multifamily property is located near a university. The occupancy fluctuates during summer months due to leasing efforts before the school year.
(6) We own a 78% interest in the joint venture that owns a fee interest in this property. The remaining 22% ownership interest is owned by an affiliate of LaSalle.

Unconsolidated Properties

 

Property Name

   Type    Location    Net Rentable
Square Feet
     Leased as of
September 30,
2011
    Original
Investment
Amount

(in thousands)
 

Legacy Village(1)

   Retail    Lyndhurst, OH      595,000         91   $ 35,000   

111 Sutter Street(2)

   Office    San Francisco, CA      286,000         89        24,600   
        

 

 

      

 

 

 

Total

           881,000         $ 59,600   
        

 

 

      

 

 

 

 

(1) We own a 47% interest in the joint venture that owns a fee interest in this property.
(2) We own an 80% interest in the joint venture that owns a fee interest in this property.

 

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Top Ten Tenants

The following table sets forth the top ten tenants, of our consolidated properties, based on their percentage of annualized minimum base rent as of September 30, 2011:

 

Tenants

 

Property

 

Line of Business

  Date of Lease
Expiration
  Lease Renewal
Options
  % of
Total
Area
    % of
Annualized
Minimum
Base Rent (1)
 

Fannie Mae(2)

  Monument IV at Worldgate   Financial Services   Dec. 31, 2011   None     3.7     6.5

Nordstrom, Inc.(3)

  Metropolitan Park North(4)   Retailer   Jan. 31, 2012   None     2.2        5.6   

Conexant Systems, Inc.

  Canyon Plaza   Communications   June 20, 2017   Two 5-year
options
    3.2        5.2   

Catholic Healthcare West

  CHW Medical Office Portfolio   Healthcare   Varies   Varies     2.8        3.5   

Musician’s Friend, Inc.

  4001 North Norfleet Road   Retailer   Feb. 28, 2017   Three 5-year
options
    11.3        3.5   

Westar Aerospace & Defense Group, Inc.

  4 & 36 Research Park Drive   Technical and Scientific Research Services   Varies   Varies     2.3        2.8   

Ross Stores

  The District at Howell Mill, Marketplace at Northglenn(4) and Stirling Slidell Shopping Centre   Retailer   Varies   Varies     1.4        1.7   

Acuity Specialty Products Group, Inc.

  105 Kendall Park Lane   Specialty Chemical Products   April 30,
2017
  Two 5-year
options
    6.6        1.7   

24 Hour Fitness

  Metropolitan Park North(4)   Health Club   Feb. 11, 2016   Three 5-year
options
    0.6        1.2   

PetSmart Stores

  The District at Howell Mill, Marketplace at Northglenn(4) and Stirling Slidell Shopping Centre   Retailer   Varies   Varies       1.1            1.2     

Total

            35.2     32.9
         

 

 

   

 

 

 

 

(1) Percent of annualized minimum base rent is calculated as annualized in-place minimum base rent excluding any above- and below-market lease amortization, straight-line rents, tenant recoveries and percentage rent revenues in the year of lease expiration divided by our total annualized minimum base rent.
(2) Fannie Mae will not renew its lease for the entire building at Monument IV at Worldgate. Fannie Mae may execute a short-term lease extension for a portion of the building upon the expiration of its current lease.
(3) Nordstrom, Inc. will not renew its lease at Metropolitan Park North and will vacate the building upon lease expiration.
(4) We expect that we will ultimately relinquish our ownership of this property to the lender in a deed in lieu of foreclosure or other alternative transaction including foreclosure in satisfaction of the mortgage.

 

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Geographic Concentration

The following table provides information regarding the geographic concentration of our real estate portfolio as of September 30, 2011:

 

Market

  Consolidated Properties     Unconsolidated Properties     Consolidated and
Unconsolidated Properties
 
  Number of
Properties
    Net
Rentable
Square Feet
    Estimated
Percent of
Fair Value
    Properties     Net
Rentable
Square Feet
    Estimated
Percent of
Fair Value
    Properties     Net
Rentable
Square Feet
    Estimated
Percent of
Fair Value
 

East

    2        540,000        14     —          —          —          2        540,000        12

West

    19        1,832,000        43        1        286,000        49     20        2,118,000        44   

Midwest

    4        1,099,000        12        1        595,000        51        5        1,694,000        18   

South

    8        2,619,000        26        —          —          —          8        2,619,000        22   

International

    1        135,000        5        —          —          —          1        135,000        4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    34        6,225,000        100     2        881,000        100     36        7,106,000        100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Statistics

With the exception of our multifamily properties which are subject to short-term leases, we generally invest in properties with high occupancy rates leased to quality tenants under long-term, non-cancelable leases. We believe our leases are beneficial to achieving our investment objectives.

The following table shows our operating statistics by property sector for our consolidated properties as of September 30, 2011:

 

    Number of
Properties
    Total Area
(Sq. Ft.)
    % of Total
Area
    Occupancy
%
    % of the Aggregate
Market Value of the
Portfolio
    Average Minimum
Base Rent per
Occupied (Sq. Ft.) (1)
 

Consolidated Properties

           

Office:

           

Commercial Office

    6        882,000        14.2     100.0     28   $ 21.62   

Medical Office

    15        757,000        12.2        79.4        18        18.18   

Retail

    3        884,000        14.2        88.2        19        13.56   

Industrial

    3        1,365,000        21.9        95.6        8        3.51   

Multifamily

    7        2,337,000        37.5        97.1        27        14.03   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    34        6,225,000        100.0     93.8     100   $ 13.19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Amount calculated as in-place minimum base rent for all occupied space at September 30, 2011 and excludes any above- and below-market lease amortization, straight-line rents, tenant recoveries and percentage rent revenues divided by total area.

The following table shows our operating statistics by property sector for our unconsolidated properties as of September 30, 2011:

 

     Number of
Properties
     Total Area
(Sq. Ft.)
     % of Total
Area
    Occupancy
%
    % of the Aggregate
Market Value of the
Portfolio
    Average Minimum
Base Rent per
Occupied (Sq. Ft.) (1)
 

Unconsolidated Properties

              

Commercial Office

     1         286,000         32.5     89.2     49   $ 30.48   

Retail

     1         595,000         67.5        90.9        51        20.15   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2         881,000         100.0     90.3     100   $ 23.46   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) Amount calculated as in-place minimum base rent for all occupied space at September 30, 2011 and excludes any above- and below-market lease amortization, straight-line rents, tenant recoveries and percentage rent revenues divided by total area.

As of September 30, 2011, the scheduled lease expirations at our consolidated properties were as follows:

 

Year

   Number of Leases
Expiring
     Annualized Minimum
Base Rent
(in thousands) (1)
     Square Footage      Percentage of Annualized
Minimum Base Rent
 

2011(2)

     63       $ 6,614         366,000         14.3

2012

     68         8,953         381,000         19.4   

2013

     54         2,876         166,000         6.3   

2014

     42         4,949         459,000         10.7   

2015

     24         2,432         154,000         5.3   

2016 and thereafter

     98         20,314         2,124,000         44.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     349       $ 46,138         3,650,000         100.0
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Amount calculated as annualized in-place minimum base rent excluding any above- and below-market lease amortization, straight-line rents, tenant recoveries and percentage rent revenues as of September 30, 2011 presented in the year of lease expiration.
(2) Does not include 5,234 leases totaling approximately 2,270,000 square feet and approximately $31,854 in annualized minimum base rent associated with our seven multifamily investments.

As of September 30, 2011, the scheduled lease expirations at our unconsolidated properties were as follows:

 

Year

   Number of
Leases
Expiring
     Annualized Minimum
Base Rent
(in thousands) (1)
     Square
Footage
     Percentage of
Annualized Minimum
Base Rent
 

2011

     16       $ 256         36,000         1.4

2012

     12         1,457         58,000         7.8   

2013

     23         4,168         122,000         22.3   

2014

     18         2,459         75,000         13.2   

2015

     9         1,425         48,000         7.6   

2016 and thereafter

     29         8,920         464,000         47.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     107       $ 18,685         803,000         100.0
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Amount calculated as annualized in-place minimum base rent excluding any above- and below-market lease amortization, straight-line rents, tenant recoveries and percentage rent revenues as of September 30, 2011 presented in the year of lease expiration.

 

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Mortgage Financing

The following is a summary of the mortgage debt for our consolidated properties and our unconsolidated properties as of September 30, 2011 (dollar amounts in thousands).

 

Property

  Interest
Rate
    Maturity Date   Principal
Balance
    Principal
Balance at
Maturity
    Amortization
Period (Years)
  Prepayment
Provisions

Consolidated Properties:

           

105 Kendall Park Lane

    4.92   September 2012   $ 12,444      $ 12,170      25   Yield  Maintenance(1)

4001 North Norfleet Road

    5.60      March 2013     24,230        23,937      30   Yield  Maintenance(1)

Metropolitan Park North(2)

    5.73      April 2013     56,514        55,281      30   Yield  Maintenance(1)

36 Research Park Drive

    5.60      July 2013     10,879        10,600      30   Yield  Maintenance(1)

Monument IV at Worldgate

    5.29      September 2013     35,195        35,195      Interest only   None

CHW Medical Office Portfolio

    5.75      November 2013     16,373        15,607      27   Defeasance(3)

CHW Medical Office Portfolio

    5.75      November 2013     14,757        14,067      27   Defeasance(3)

CHW Medical Office Portfolio

    5.75      November 2013     14,250        13,583      27   Defeasance(3)

CHW Medical Office Portfolio

    5.79      March 2014     32,280        30,575      27   Defeasance(3)

Stirling Slidell Shopping Centre

    5.15      April 2014     12,850        12,088      30   Defeasance(3)

Cabana Beach Gainesville(4)

    5.57      December 2014     48,011        45,735      30   Yield  Maintenance(1)

Cabana Beach San Marcos(4)

    5.57      December 2014     19,211        18,301      30   Yield  Maintenance(1)

Campus Lodge Columbia(4)

    5.57      December 2014     15,976        15,219      30   Yield  Maintenance(1)

Campus Lodge Athens(4)

    5.57      December 2014     13,417        12,781      30   Yield  Maintenance(1)

The Edge at Lafayette(4)

    5.57      February 2015     17,111        16,262      30   Yield  Maintenance(1)

4 Research Park Drive

    6.05      March 2015     6,659        5,956      25   Yield  Maintenance(1)

Marketplace at Northglenn(5)

    5.50      January 2016     61,269        56,598      30   Defeasance(3)

Campus Lodge Tampa

    5.95      October 2016     33,500        31,367      30   Defeasance(3)

Station Nine Apartments

    5.50      May 2017     36,885        36,885      Interest only   Defeasance(3)

Canyon Plaza

    5.90      June 2017     29,564        26,623      30   Yield  Maintenance(1)

The District at Howell Mill

    6.14      June 2017     10,000        9,321      30   Yield  Maintenance(1)

Railway Street Corporate Centre

    5.16      September 2017     28,466        26,241      30   Yield  Maintenance(1)

The District at Howell Mill

    5.30      March 2027     35,000        24,099      30   Yield  Maintenance(1)

Unconsolidated Properties:

           

Legacy Village

    5.63   January 2014   $ 80,822      $ 74,211      25   Yield  Maintenance(1)

Legacy Village

    5.63      January 2014     8,521        7,883      25   Yield  Maintenance(1)

111 Sutter Street

    5.58      June 2015     55,129        51,912      30   Yield  Maintenance(1)

 

(1) A yield maintenance prepayment provision requires the borrower who prepays the loan to pay a premium equal to an amount that allows the lender to attain the same yield as if the borrower had made all scheduled payments until maturity.
(2) This property’s primary tenant will vacate the building on January 31, 2012 at its lease expiration. We expect to relinquish our ownership of this property to the lender in a deed in lieu of foreclosure or other alternative transaction, including foreclosure in satisfaction of the mortgage when the property’s primary tenant vacates the property.
(3) A defeasance provision requires the borrower to, in the event of a prepayment, substitute the collateral with other income-producing assets (typically U.S. Treasury bonds) to generate income for the lender for the remainder of the term of the loan.
(4) The mortgage debt is cross-collateralized.
(5) The mortgage loan is in default as of October 5, 2011. We expect to relinquish our ownership of this property to the lender in a deed in lieu of foreclosure or other alternative transaction, including foreclosure in satisfaction of the mortgage.

 

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Insurance

Although we believe our investments are currently adequately covered by insurance consistent with the level of coverage that is standard in our industry, we cannot predict at this time if we will be able to obtain adequate coverage at a reasonable cost in the future.

Competition

We face competition when attempting to make real estate investments, including competition from domestic and foreign financial institutions, other REITs, life insurance companies, pension funds, partnerships and individual investors. The leasing of real estate is highly competitive. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses), services provided, and the design and condition of the improvements. For more information regarding the competition that we face and the related risks, see “Risk Factors—Risks Related to Investment in Real Property.”

 

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MANAGEMENT

Board of Directors

We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The board is responsible for the management and control of our affairs. The board has retained our advisor to manage our day-to-day affairs and our portfolio of investments, subject to the board’s supervision.

We have a seven-member board. Our board of directors may change the size of the board, but not to fewer than three members. Our charter provides that a majority of our directors must be independent directors, except for a period of up to 60 days after the death, removal or resignation of an independent director pending the election of such independent director’s successor. An independent director is a director who is not and has not for the last two years been associated, directly or indirectly, with our advisor or our sponsor. A director is deemed to be associated with our advisor or sponsor if he or she owns any interest in, is employed by, is an officer or director of, or has any material business or professional relationship with our advisor, our sponsor, or any of their affiliates, performs services (other than as a director) for us, or serves as a director or trustee for more than three REITs organized by our sponsor or advised by our advisor. A business or professional relationship will be deemed material per se if the gross revenue derived by the director from our sponsor, our advisor, and any of their affiliates exceeds five percent of (i) the director’s annual gross revenue derived from all sources during either of the last two years or (ii) the director’s net worth on a fair market value basis. Our charter requires that at all times at least one of our independent directors must have at least three years of relevant real estate experience. Our charter and bylaws have been ratified by our board of directors, including a majority of our independent directors.

Each director will be elected by the stockholders to serve until the next annual meeting of stockholders and until his or her successor has been duly elected and qualified. Although the number of directors may be increased or decreased, a decrease may not shorten the term of any incumbent director. Any director may resign at any time or may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast generally in the election of directors. The notice of a meeting called to remove a director must indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed.

A vacancy created by an increase in the number of directors or the death, resignation, removal, adjudicated incompetence or other incapacity of a director may be filled only by a vote of a majority of the remaining directors and, in the case of election of an independent director, after nomination of a replacement by a majority of the remaining independent directors in consultation with our advisor. If there are no remaining independent directors, then a majority vote of the remaining directors shall be sufficient to fill a vacancy among the independent directors’ positions. If at any time there are no directors in office, then successor directors shall be elected by the stockholders. Any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred.

For so long as the advisory agreement is in effect, our advisor has the right to nominate, subject to the approval of such nomination by our board of directors, three affiliated directors to the slate of directors to be voted on by the stockholders at our annual meeting of stockholders; provided, however, that such number of director nominees shall be reduced as necessary by a number that will result in a majority of the directors being independent directors. Our board of directors must also consult with our advisor in connection with (i) its selection of each independent director for nomination to the slate of directors to be voted on at the annual meeting of stockholders, and (ii) filling any vacancies created by the removal, resignation, retirement or death of any director.

In fulfilling his or her duties to us, each director will be bound by our charter, which was reviewed and ratified by a unanimous vote of the directors and of the independent directors at a meeting held on November 11, 2011. The directors are not required to devote all of their time to our business and are only required to devote the

 

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time to our affairs as their duties may require. The board will generally meet quarterly or more frequently if necessary, in addition to meetings of the various committees of the board described below. It is not expected that the directors will be required to devote a substantial portion of their time to discharge their duties as directors. Consequently, in the exercise of their fiduciary responsibilities, the directors will rely heavily on our advisor. Our board is empowered to fix the compensation of all officers that it selects and may pay compensation to directors for services rendered to us in any other capacity.

Responsibilities of Directors

The responsibilities of the board of directors include the following:

 

   

It reviews and adopts valuation guidelines to be used in connection with the calculation of our NAV, monitoring our advisor’s compliance with the valuation guidelines, and approving the independent valuation firm selected by our advisor;

 

   

It approves and oversees our overall investment strategy, which consists of elements such as (i) allocation percentages of capital to be invested in real properties and real estate-related assets, (ii) diversification strategies, (iii) investment selection criteria for real property and real estate-related assets, and (iv) asset disposition strategies;

 

   

It establishes and adopts investment guidelines that govern our property acquisitions and dispositions and limit the types of properties that may be purchased or sold, and depending on the type of transaction, limits the transaction amounts that may be approved without specific approval of our board. The board of directors has delegated to our advisor the authority to approve the consideration that we pay for each property we acquire, so long as the acquisition is consistent with the investment guidelines. Our board may change from time to time the scope of authority delegated to our advisor. The consideration we pay for each property acquired will ordinarily be based on the fair market value of the property. However, in connection with an acquisition of a property from our advisor, our sponsor, a director or any affiliate, and in connection with any other acquisition in which a majority of our independent directors determines to be appropriate, the fair market value of the property acquired will be determined by an independent appraiser selected by our independent directors;

 

   

It approves an asset allocation framework for investing in real estate-related assets consisting primarily of components such as (i) target mix of securities across a range of risk/reward characteristics, (ii) exposure limits to individual securities and debt related investments and (iii) exposure limits to securities and debt related investment subclasses such as common equities and other securities, including foreign securities;

 

   

It approves specific discretionary limits and authority granted to our advisor in connection with the purchase and disposition of real estate-related assets that fit within the asset allocation framework;

 

   

It approves and oversees our debt financing strategies;

 

   

It determines our distribution policy and authorizes distributions from time to time; and

 

   

It approves amounts available for repurchases of shares of our common stock and oversees the share repurchase plan.

The directors are not required to devote all of their time to our business and are only required to devote such time to our affairs as their duties require. The directors will meet quarterly or more frequently as necessary.

The directors have established and will periodically review written policies on investments and borrowings consistent with our investment objectives and will monitor our administrative procedures, investment operations and performance and those of our advisor to assure that such policies are carried out.

The independent directors are also responsible for reviewing our fees and expenses on at least an annual basis and with sufficient frequency to determine that the expenses incurred are in the best interest of the stockholders.

 

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In order to reduce or eliminate certain potential conflicts of interest, our charter requires that a majority of our board of directors (including a majority of the independent directors) not otherwise interested in the transaction approve any transaction with any of our directors, our sponsor, our advisor or any of their affiliates. The independent directors will also be responsible for reviewing the performance of our advisor and determining that the compensation to be paid to our advisor is reasonable in relation to the nature and quality of services performed and that the provisions of the advisory agreement are being carried out. See “—the Advisory Agreement—Advisory Fee and Expense Reimbursements.”

Committees of the Board of Directors

The board of directors may delegate many of its powers to one or more committees from time to time as deemed appropriate by the board. Our charter requires that each committee consist of at least a majority of independent directors.

Audit Committee

The board has established an audit committee, which is comprised of Thomas F. McDevitt, Virginia G. Breen and Jonathan B. Bulkeley, each of whom is independent. Mr. Bulkeley serves as the chairperson of the audit committee and our board of directors has determined that each of Ms. Breen and Mr. Bulkeley qualifies as an “audit committee financial expert” as that term is defined by SEC rules.

The audit committee assists the board in overseeing:

 

   

our accounting and financial reporting processes;

 

   

the integrity and audits of our financial statements;

 

   

our compliance with legal and regulatory requirements;

 

   

the qualifications and independence of our independent auditors; and

 

   

the performance of our internal and independent auditors.

The audit committee selects the independent public accountants to audit our annual financial statements and reviews with the independent public accountants the plans and results of the audit engagement. The audit committee also approves the audit and non-audit services provided by the independent public accountants and the fees we pay for these services.

Directors and Executive Officers

Our directors and executive officers are set forth below.

 

Name

   Age   

Position

Lynn C. Thurber*

   64    Director, Chairman of the Board

C. Allan Swaringen

   51    Chief Executive Officer and President

Gregory A. Falk

   42    Chief Financial Officer and Treasurer

Gordon G. Repp

   51    General Counsel and Secretary

Thomas F. McDevitt

   54    Independent Director

Virginia G. Breen

   47    Independent Director

Jonathan B. Bulkeley

   51    Independent Director

[    ]

   [    ]    Independent Director

Peter H. Schaff

   53    Director

[    ]

   [    ]    Director

 

* Director nominee whose appointment will become effective on November 15, 2011.

 

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Lynn C. Thurber is a director nominee who will become Chairman of the Board on November 15, 2011. Ms. Thurber has served as the non-Executive Chairman of LaSalle since December 2006. Ms. Thurber served as the Chief Executive Officer of LaSalle from 2000 to December 2006 and Co-President from 1994 to 2000. She also served as Chief Executive Officer of Alex Brown Kleinwort Benson Realty Advisors, or ABKB, until the company merged with LaSalle Partners in 1994. Prior to joining ABKB in 1992, Ms. Thurber was a Principal at Morgan Stanley & Co. Ms. Thurber is also member of the board of directors of Duke Realty Corporation, a publicly traded REIT listed on the New York Stock Exchange, a member of the board of directors of Investa Property Group, an Australian-based real estate owner, developer and fund manager, and a member of the Real Estate Information Standards Board in the United States. She is also a trustee and member of the Board of the Urban Land Institute, a member of the Board of Greenprint Foundation and formerly chaired the Pension Real Estate Association. Ms. Thurber also previously served as a director of Jones Lang LaSalle and is a former member of the board of directors and Executive Committee of the Association of Foreign Investors in Real Estate and the board of directors of the Toigo Foundation. Ms. Thurber holds an M.B.A. from Harvard Business School and an A.B. from Wellesley College.

C. Allan Swaringen has served as our Chief Executive Officer and President since November 2011 and as Managing Director of LaSalle since 1998. As our Chief Executive Officer, Mr. Swaringen leads the investment team and is responsible for all of our investing, asset management and finance functions, along with overseeing our strategic direction. Mr. Swaringen served as the Fund Manager for the company since the inception in 2004. Mr. Swaringen also serves as President and Portfolio Manager for LaSalle’s global fund of funds program which currently has invested in more than 30 separate funds and programs around the world. Since joining LaSalle, his responsibilities have included marketing, client services, and structuring, negotiating and closing numerous real estate investment funds. Prior to joining LaSalle, Mr. Swaringen was a partner with Crown Golf Properties, L.P., an investment subsidiary of Henry Crown and Company. Prior to Crown Golf, he was a Vice President with Cohen Financial, a loan officer with Enterprise Savings Bank, and began his career in real estate more than 25 years ago with Trammell Crow Company. Mr. Swaringen holds an M.B.A. from the University of Chicago Graduate School of Business and a B.S. from the University of Illinois.

Gregory A. Falk has served as our Chief Financial Officer and Treasurer since November 2011 and as Senior Vice President of LaSalle since 2004. Prior to joining LaSalle, Mr. Falk was an Audit Manager with Deloitte & Touche LLP for six years and a Senior Staff Accountant with First of America Bank for five years. Mr. Falk has worked on numerous real estate engagements, both public and private, since 1999. Mr. Falk holds a B.S. in Finance and a B.S. in Economics from Northern Illinois University and a M.S. in Accountancy Science from Northern Illinois University. He is also a Certified Public Accountant.

Gordon G. Repp has served as our General Counsel and Secretary since November 2011. Mr. Repp has served as Global Deputy General Counsel for Jones Lang LaSalle since 2003 and Assistant Secretary for Jones Lang LaSalle since 2001. He also served as Assistant Global General Counsel of Jones Lang LaSalle from 2001 to 2003. Mr. Repp has also served as General Counsel and Secretary for LaSalle since 2003. Prior to joining Jones Lang LaSalle, Mr. Repp held various positions with Outboard Marine Corporation, a publicly traded, NYSE listed global manufacturer and distributor of marine and marine related products, including Assistant General Counsel and Assistant Secretary. Mr. Repp holds a J.D. from Northern Illinois University College of Law and a B.S. from Western Illinois University.

Thomas F. McDevitt has served as one of our directors since December 2004 and our Chairman of the Board from 2004 to November 2011. Mr. McDevitt is the Managing Partner of Edgewood Capital Partners, an investment firm that makes and manages investments in the real estate and mortgage arenas. Prior to founding Edgewood Capital Partners in 2002, Mr. McDevitt was a Managing Director in charge of the Large Loan ($30 million to $100 million) Commercial Mortgage Backed Securitization Group at Societe Generale. He was also a founder and Managing Partner of Meenan, McDevitt & Co., a broker-dealer and investment banking firm, from 1991 until it was sold to Societe Generale in 1998. From 1988 to 1991, Mr. McDevitt managed the commercial mortgage syndication desk at Citibank, and from 1984 to 1987, he was responsible for commercial mortgage

 

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sales in the Mid-Atlantic region of the United States at Citibank. Mr. McDevitt also serves (or served) as a director of: Excelsior Absolute Return Fund of Funds Master Fund, LLC (from its inception in 2003 until its dissolution in June 2010), Excelsior Absolute Return Fund of Funds, LLC (from its inception in 2003 until its dissolution in June 2010), UST Global Private Markets Fund, LLC (since its inception in July 2008) and Excelsior Buyout Investors, LLC (since its inception in May 2003), each of which is (or was) registered under the Investment Company Act. He was also a director of Quadra Realty Trust, Inc. from 2007 to March 2008, which, prior to being acquired in March 2008, was a publicly traded REIT listed on the NYSE. Mr. McDevitt holds an M.B.A. from the Amos Tuck School of Business at Dartmouth College and an A.B. from Harvard College.

Virginia G. Breen has served as one of our directors since 2004. Ms. Breen is a partner of Chelsea Partners since 2011. She was a partner and co-founder of Blue Rock Capital, a private equity fund focused on investing in early-stage information technology and service businesses from 1995 to 2011. She was a partner of the Sienna Limited Partnership IV, L.P., which focuses on investing in early and expansion-stage private companies in consumer products, information technology and business service from 2003 to 2011. Previously, Ms. Breen was a Vice President with the Sprout Group, the venture capital affiliate of Donaldson, Lufkin & Jenrette (now Credit Suisse), where she worked from 1988 to 1995. Ms. Breen was an Investment Analyst with Donaldson, Lufkin & Jenrette’s Investment Banking Group, prior to which she worked as a Systems Analyst and Product Marketing Engineer for Hewlett-Packard. Ms. Breen also serves (or served) as a director of Excelsior Absolute Return Fund of Funds Master Fund, LLC (since its inception in 2003 until its dissolution in June 2010), Excelsior Absolute Return Fund of Funds, LLC (since its inception in June 2003 until its dissolution in June 2010), UST Global Private Markets Fund, LLC (since its inception in July 2008) and Excelsior Buyout Investors, LLC (since its inception in May 2003). Ms. Breen also serves on the board of managers of: O’Connor Fund of Funds: Long/Short Credit Strategies LLC (formerly, UBS Credit Recovery Fund, L.L.C.) (since June 2008), UBS Equity Opportunity Fund, L.L.C.) (since May 2008), O’Connor Fund of Funds: Equity Opportunity LLC (formerly, UBS Equity Opportunity Fund II, L.L.C.) (since May 2008), O’Connor Fund of Funds: Event LLC (formerly, UBS Event Fund, L.L.C.) (since May 2008), O’Connor Fund of Funds: Long/Short Equity Strategies LLC (formerly, UBS M2 Fund, L.L.C.) (since August 2008), UBS Multi-Strat Fund, L.L.C. (since May 2008), O’Connor Fund of Funds: Technology LLC (formerly, UBS Technology Partners, L.L.C.) (since May 2008), UBS Eucalyptus Fund, L.L.C. (since May 2008), UBS Juniper Crossover Fund, L.L.C. (since June 2008), UBS Tamarack International Fund, L.L.C. (since May 2008) and UBS Willow Fund, L.L.C. (since May 2008), each of which is (or was) registered under the Investment Company Act. Since 2001, Ms. Breen also has served as a director of ModusLink Global Solutions, Inc., a public company listed on the Nasdaq Global Select Market. Ms. Breen holds an M.B.A. from Columbia University and an A.B. from Harvard College.

Jonathan B. Bulkeley has served as one of our directors since 2004. Mr. Bulkeley has been the Chief Executive Officer of Scanbuy, a wireless software company, since February 2006. Mr. Bulkeley founded Blue Square Capital Management, LLC in March 2009 and has served as its Chief Investment Officer since its inception. Prior to Scanbuy, Mr. Bulkeley was an owner of Achilles Partners, an advisory firm, from 2002 to 2006. Mr. Bulkeley served as Chairman and Chief Executive Officer of Lifeminders, an online direct marketing company, from February 2001 until Lifeminders was sold in October 2001. Mr. Bulkeley was the Chief Executive Officer of barnesandnoble.com from 1998 to 2000. From 1993 to 1998, Mr. Bulkeley worked for America Online, where he served as managing director of the company’s joint venture with Bertelsmann Online in the United Kingdom and as Vice President of Business Development and General Manager of Media. Before joining America Online, Mr. Bulkeley spent eight years at Time Inc. in a variety of roles, including Director of Marketing and Development for Money magazine. Mr. Bulkeley also serves (or served) as a director of Excelsior Absolute Return Fund of Funds Master Fund, LLC from its inception in 2003 until its dissolution in June 2010, Excelsior Absolute Return Fund of Funds, LLC (from its inception in June 2003 until its dissolution in June 2010), UST Global Private Markets Fund, LLC (since its inception in July 2008) and Excelsior Buyout Investors, LLC (since its inception in May 2003), each of which is (or was) registered under the Investment Company Act. In addition, Mr. Bulkeley serves on the advisory boards of three private equity funds: The Jordan Edminston Venture Fund in New York, Elderstreet Capital Partners in London and Jerusalem Global Venture

 

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Partners in Israel. Mr. Bulkeley has served previously as non-executive Chairman of QXL Ricardo plc, its non-executive Vice Chairman of Edgar Online, Chairman of Logikeep, Chairman of the Yale Alumni magazine and as a director of Global Commerce Zone, The Readers Digest Association, Instant Dx, Cross Media Marketing Corp and the Hotchkiss School. Mr. Bulkeley has served on the board of directors DEX One Corporation, a public reporting company and successor to R.H. Donnelly Corporation, since January 2010, and has served on the board of directors of Spark Networks, Inc., a public reporting company, since September 2006. Mr. Bulkeley holds a B.A. in African Studies from Yale University.

Peter H. Schaff has served as one of our directors since 2004. Mr. Schaff has served as an International Director and the Regional Chief Executive Officer of LaSalle’s North American Private Equity business since 2005. He serves on LaSalle’s North American Private Equity Investment and Allocation Committees and also on its Global Management Committee. Since joining LaSalle in 1984, Mr. Schaff has had extensive experience in all aspects of institutional real estate investment management, including acquisitions, joint ventures, financings, redevelopments, and dispositions. Prior to joining our advisor, Mr. Schaff was a Banking Officer of Continental Illinois National Bank. Mr. Schaff is a member of the Urban Land Institute and PREA. Mr. Schaff serves as a director of various private REITs sponsored by our advisor. Mr. Schaff holds an M.B.A. from the Booth School of Business at the University of Chicago and a B.A. from Stanford University.

Compensation of Directors

Our independent directors receive $2,000 for each quarterly board meeting attended in person and $1,000 for each quarterly meeting attended by telephone. Each independent director also receives $1,000 for each special meeting attended in person or by telephone. Each audit committee member receives $750 for each quarterly or special audit committee meeting attended in person or by telephone. In addition, the Chairperson of the audit committee receives an annual retainer of $1,000 for his services.

In addition, our board of directors may approve, at its discretion, the grant of Class M shares of restricted stock to each of our independent directors under our independent directors’ compensation plan, which operates as a sub-plan of our long-term incentive plan, as described below. All directors are reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at board meetings. If a director is also one of our officers, we will not pay separate compensation for services rendered as a director.

Executive Compensation

We currently have no employees to whom we pay salaries. We do not intend to pay any salaries to our officers for their services as officers; provided if we do so in the future, we will disclose any such payments in our next quarterly or annual reports filed pursuant to SEC requirements. If our advisor subsequently determines to seek reimbursement for personnel costs of individuals who serve as our executive officers, we will disclose any such reimbursements in our next quarterly or annual reports filed pursuant to SEC requirements. Each of our officers is also an officer of our advisor and receives compensation pursuant to employment arrangements of our advisor or one of its affiliates.

Long-Term Incentive Plan

Our board of directors intends to adopt a long-term incentive plan, which we will use to attract and retain directors, officers, employees and consultants. Our incentive plan will offer qualified individuals an opportunity to participate in our growth through awards in the form of, or based on, our common stock. The incentive plan will authorize the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, dividend equivalents, other stock-based awards and cash-based awards to directors, employees and consultants of ours selected by the board of directors for participation in the plan. Stock options may not have an exercise price that is less than the fair market value of a share of our common stock on the date of grant and may not have a term in excess of ten years from the grant date.

 

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Our board of directors or a committee appointed by the board of directors will administer the incentive plan, with sole authority to determine all of the terms and conditions of the awards. No awards will be granted under the plan if the grant or vesting of the awards would jeopardize our status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under our charter. Unless otherwise determined by our board of directors, no award granted under the plan will be transferable except through the laws of descent and distribution.

We anticipate that our board of directors will authorize and reserve a maximum of 2,000,000 Class M shares for issuance under the incentive plan. However, no awards shall be granted under the incentive plan on any date on which the aggregate number of shares subject to awards previously issued under the incentive plan, together with the proposed awards to be granted on such date, exceed 2% of the total outstanding shares of common stock on such date. In the event of a transaction between our company and our stockholders that causes the per-share value of our common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits under the plan will be adjusted proportionately and our board of directors will make adjustments to the long-term incentive plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from the transaction. In the event of a stock split, a stock dividend or a combination or consolidation of the outstanding shares of common stock into a lesser number of shares, the authorization limits under the plan will automatically be adjusted proportionately and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.

Our board of directors may, in its sole discretion at any time, determine that all or a portion of a participant’s awards will become fully vested. The board may discriminate among participants or among awards in exercising its discretion. The incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by our board of directors, unless extended or earlier terminated by the board of directors. Our board of directors may terminate the plan at any time. The expiration or other termination of the plan will not, without the participant’s consent, have an adverse impact on any award that is outstanding at the time the plan expires or is terminated. Our board of directors may amend the plan at any time, but no amendment will adversely affect any award without the participant’s consent and no amendment to the plan will be effective without the approval of our stockholders if such approval is required by any law, regulation or rule applicable to the plan.

Our Advisor

All of our day-to-day operations are managed by our advisor. Our advisor is also responsible, subject to oversight by our board of directors, for sourcing our investment opportunities and for making decisions related to the acquisition, management and disposition of our assets, in accordance with our investment objectives, guidelines, policies and limitations. Our advisor has contractual and fiduciary responsibilities to us and our stockholders pursuant to an advisory agreement.

The executive officers of our advisor who have management responsibility and authority with respect to the performance of services for us pursuant to the advisory agreement are as follows:

 

Name

   Age     

Position

Jeff A. Jacobson

     50       Chief Executive Officer, Global

Peter H. Schaff

     53       Chief Executive Officer, Americas

Wade W. Judge

     61       Chief Investment Officer, Americas

William J. Maher

     56       Director, North American Strategy

C. Allan Swaringen

     51       Managing Director

Gregory A. Falk

     42       Senior Vice President

Gordon G. Repp

     51       General Counsel, Executive Vice President and Secretary

For more information concerning the background and experience of Messrs. Schaff, Swaringen, Falk and Repp, see “—Directors and Executive Officers.”

 

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Jeff A. Jacobson is the Global Chief Executive Officer of LaSalle and is responsible for its global property platform managing over $45 billion of investments in private and public real estate in Europe, North America and Asia Pacific. Prior to his appointment as Global Chief Executive Officer, Mr. Jacobson served as Regional Chief Executive Officer for LaSalle’s European operation, where he was responsible for servicing LaSalle’s European investment management clients, chairing the European Investment Committee and implementing growth initiatives. Mr. Jacobson was a Managing Director of Security Capital Group Incorporated from 1998 to 2000 and Senior Vice President of the company from 1997 to 1998. From 1986 until 1997, he held various positions at LaSalle Partners where he worked on a broad range of property acquisitions, sales financing and restructuring assignments. Mr. Jacobson is a member of Jones Lang LaSalle’s Global Executive Committee and Co-Investment Capital Allocation Committee and he serves on LaSalle’s three regional Investment Committees. Mr. Jacobson holds an M.A. from Stanford University’s Food Research Institute and a B.A. from Stanford University.

Wade W. Judge serves as the Chief Investment Officer of LaSalle’s North American Private Equity business, the President of LaSalle Property Fund, LaSalle’s U.S. open-end fund and Senior Account Executive for some of LaSalle’s major separate account clients. Prior to assuming these responsibilities, for approximately ten years, Mr. Judge was responsible for directing the LaSalle Acquisitions Group’s office, industrial, retail and residential investments. From 1975 to 1992, Mr. Judge worked for the Chairman of Jones Lang LaSalle and later managed Jones Lang LaSalle’s Development Group. Before joining Jones Lang LaSalle, he was a loan officer with Brown Brothers Harriman & Co. in New York City. Mr. Judge holds an M.B.A. from Stanford University and a B.A. from Dartmouth College.

William J. Maher serves as Director of North American Research and Strategy for LaSalle. In this role, he is responsible for the development of real estate investment strategy for LaSalle’s North American business and the oversight of a team that provides market analysis for existing and potential new investments. In addition to leading research efforts throughout North America, Mr. Maher works with clients to develop custom real estate investment and portfolio strategies. Mr. Maher is a principal author of our sponsor’s Investment Strategy Annual and numerous white papers and reports. Prior to joining LaSalle, Mr. Maher was a partner with Ernst & Young and director of the Real Estate Consulting Group’s Washington, D.C. office, where his responsibilities included strategic planning, market and financial feasibility assessment, portfolio due diligence and management of corporate real estate. Previously, Mr. Maher was Executive Vice President of Halcyon Ltd., a real estate consulting and services firm. He has held leadership positions with the Urban Land Institute, International Council of Shopping Centers, Real Estate Research Institute and the Real Estate Roundtable. Mr. Maher holds an M.C.R.P. in Urban Planning from Harvard University’s Kennedy School of Government and a B.A. from Williams College.

Investment Committees

In evaluating investment opportunities for our real estate portfolio, our advisor will utilize its regional investment committees for North America, Continental Europe, the Asia Pacific region and the United Kingdom. All acquisitions and dispositions of properties in our portfolio will be subject to the prior review and approval of the investment committee in the geographic region of the investment. Each of the investment committees is comprised of senior real estate professionals who individually have between 14 and 30 years of experience in the real estate industry. A brief description of the each investment committee and its members is below.

North American Investment Committee

Our advisor will utilize the North American Investment Committee in evaluating potential investment opportunities for our real estate portfolio throughout North America. The North American Investment Committee will review and approve, by majority vote, each potential investment in a property located in North America before our advisor may consider the opportunity for our portfolio. The members of the North American Investment Committee are set forth below.

 

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Jacques N. Gordon is the Global Investment Strategist for LaSalle. Mr. Gordon He also serves on LaSalle’s Global Management Committee and directs the Investment Strategy and Research group, which analyzes capital markets, regional economies and property markets in approximately 30 countries. Mr. Gordon served four years on the board of directors of the Association of Foreign Investors in Real Estate (AFIRE) and as Director of Programs for AFIRE in 2010. Previously, he served as Director of Research at Baring Advisors, a subsidiary of London-based ING-Barings PLC, and at Real Estate Research Corporation in Chicago. Mr. Gordon is a member of the National Council of Real Estate Investment Fiduciaries, NAREIT and AFIRE. He has chaired and continues to serve on PREA’s Research Committee and also serves on the Board of Governors of the Metropolitan Planning Council, a non-profit Chicago organization, and the Advisory Board of the MIT Center for Real Estate. Mr. Gordon holds a Ph.D. from the Massachusetts Institute of Technology, an M.Sc. from the London School of Economics and a B.A. from the University of Pennsylvania.

James M. Hutchinson is a member of the North American Investment Committee. Mr. Hutchinson also serves as an International Director of LaSalle and President of the LaSalle Income & Growth series of funds in the United States. In this role, Mr. Hutchinson is responsible for relationships with investors, portfolio design, selection of acquisitions and financing of fund properties. He has worked with both domestic and international investors, including closed- and open-ended funds, international insurance companies, opportunity funds and domestic separate account investors. For the first 14 years after joining LaSalle in 1985, he was an Acquisitions Officer in LaSalle’s Acquisitions Group. Prior to joining LaSalle, Mr. Hutchinson was a Senior Manager at Deloitte & Touche LLP in the Audit Department. Mr. Hutchinson holds an M.B.A. from Indiana University and a B.A. from Brown University.

In addition to the persons described above, Messrs. Jacobson, Judge, Maher and Schaff are also members of the North American Investment Committee. For more information concerning the background and experience of Messrs. Jacobson, Judge and Maher, see “—Our Advisor,” and for Mr. Schaff, see “—Directors and Executive Officers.”

Continental Europe Investment Committee

Our advisor will utilize the Continental Europe Investment Committee in evaluating potential investment opportunities for our real estate portfolio throughout Continental Europe. The Continental Europe Investment Committee will review and approve, by majority vote, each potential investment in a property located in Europe before our advisor may consider the opportunity for our portfolio. The members of the Continental Europe Investment Committee are set forth below.

Helen M.T. Garbutt serves as an International Director of LaSalle and Head of Fund Management Value-Add/Opportunistic Vehicles in Europe and is a member of the European Management Board. Ms. Garbutt is responsible for client reporting, performance measurement and the successful implementation of the investment business plans. Ms. Garbutt has worked in European real estate management since 1989. Prior to joining LaSalle in 1996, Ms. Garbutt worked in the Real Estate Development Finance Department of Barclays Bank in France for seven years, where she was responsible for development loans to real estate subsidiaries of large corporate firms and the management of the equity participations held in real estate companies. Ms. Garbutt holds a B.S. from the Institut d’études économiques et juridiques appliqués à la Construction et à l’Habitation in property finance and law and a B.A. from the University of Manchester in French studies.

Robin N. Goodchild serves as an International Director and a member of LaSalle’s Global Research and Strategy Team and has over 30 years of real estate investment experience. In this role, Dr. Goodchild is responsible for identifying opportunities in European property markets. Dr. Goodchild joined LaSalle in 1997 as a Research Director, prior to which he was a partner at Gerald Eve, Chartered Surveyors, for 12 years. He is a Fellow of the Royal Institution of Chartered Surveyors, an honorary Fellow of the Society of Property Researchers and a frequent speaker at property conferences across Europe. Dr. Goodchild holds a Ph.D. and an M.A. in land economy from Cambridge University.

 

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Susan J. Lloyd-Hurwitz is a Managing Director of LaSalle in Europe and has executive responsibility for the core investment accounts and fund business lines in the European region. Prior to joining LaSalle, Ms. Lloyd-Hurwitz held senior executive positions at MGPA, a private equity real estate advisory company), Macquarie Group and Lend Lease in Australia, the United States and Europe. Ms. Lloyd-Hurwitz’s 22 years of experience in the real estate funds management industry includes fund and portfolio management in the direct and indirect markets, fund development, mergers and acquisitions, dispositions, research and business strategy. She holds an M.B.A. from INSEAD and a B.A. from the University of Sydney.

Simon W. Marrison is the Head of Europe for LaSalle and is responsible for LaSalle’s private equity business in the United Kingdom and Continental Europe. In this role, Mr. Marrison oversees teams located in London, Paris, Munich, Madrid and Luxembourg. Mr. Marrison joined LaSalle in 2001 from Rodamco France, where he served as Country Director. Since September 2011, Mr. Marrison has also served as a director of TR Property Trust. He is a former Board Member of the French National Council of Shopping Centres and is a current member of the Royal Institution of Chartered Surveyors. Mr. Marrison holds a B.Sc. in Urban Land Administration from the Portsmouth Polytechnic University.

In addition to the persons described above, Mr. Jacobson is also a member of the Continental Europe Investment Committee. For more information concerning the background and experience of Mr. Jacobson, see “—Our Advisor.”

Asia Pacific Investment Committee

Our advisor will utilize the Asia Pacific Investment Committee in evaluating potential investment opportunities for our real estate portfolio throughout the Asia Pacific region. The Asia Pacific Investment Committee will review and approve, by majority vote, each potential investment in a property located in the Asia Pacific region before our advisor may consider the opportunity for our portfolio. The members of the Asia Pacific Investment Committee are set forth below.

Mark N. Gabbay is an International Director of LaSalle and Chief Investment Officer for the Asia Pacific region. In this role, he is responsible for formulating and implementing LaSalle’s investment strategy in the region, sourcing and structuring opportunities and overseeing the investment process. Mr. Gabbay has been in the real estate industry for over 18 years, working in the Asia Pacific region for 13 years and the United States for five years. Most recently, he served as Managing Director and Head of Nomura’s Asia Asset Finance Division and as Co-Head of the Global Real Estate Group, Asia Pacific, at Lehman Brothers, where he was responsible for the firm’s expansion into new markets for debt and equity real estate investments. Prior to joining Lehman Brothers in Tokyo, Mr. Gabbay worked at GMAC Commercial Mortgage Corporation, where he served as the Head of Real Estate Lending. Mr. Gabbay holds a B.A. in Architecture from the University of California, Berkeley.

Philip Ling is an International Director of LaSalle and the Chief Executive Officer for the Asia Pacific region with 25 years of investment management experience. Mr. Ling is also a member of LaSalle’s Global Management Committee. Prior to joining LaSalle in 2007, Mr. Ling served as the Chief Executive Officer of Investment Management for Lend Lease Corporation in Australia, prior to which he served as Chief Executive Officer for the company’s Asia Pacific Wholesale Funds. He serves on the Executive Board of the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) and is a member of the Royal Institution of Chartered Surveyors. Mr. Ling holds a B.Sc. and an M.Sc. in Property Development from South Bank University in London.

Ian R. Mackie is an International Director of LaSalle and Head of Private Equity for the Asia Pacific region. Mr. Mackie was a founding member of LaSalle’s Asia Pacific business that was established in 2000. He has worked in the Asia Pacific region since 1988 and has lived in Singapore since 1994. During this time, he was responsible for investing either directly or in joint ventures in office, retail, industrial, hotel, multifamily and

 

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residential properties and developments in Australia, Indonesia, Malaysia, the Philippines, Thailand, Singapore, Hong Kong, China, Korea and Japan. He is also an Associate of the Australian Property Institute. Mr. Mackie holds a B.A. in Economics and Law from the University of Canberra and an Associate Diploma in Valuation from Sydney University of Technology.

In addition to the persons described above, Messrs. Gordon and Jacobson and Ms. Thurber are also members of the Asia Pacific Investment Committee. For more information concerning the background and experience of Mr. Jacobson, see “—Our Advisor,” for Mr. Gordon, see “—North American Investment Committee,” and for Ms. Thurber see “—Directors and Executive Officers.”

U.K. Investment Committee

Our advisor will utilize the U.K. Investment Committee in evaluating potential investment opportunities for our real estate portfolio within the United Kingdom. The U.K. Investment Committee will review and approve, by majority vote, each potential investment in a property located in the United Kingdom before our advisor may consider the opportunity for our portfolio. The members of the U.K. Investment Committee are set forth below.

Julian M. Agnew serves as a Senior Fund Manager responsible for the management of a major U.K. pension fund. He is responsible for preparing and implementing the annual investment strategies, approving all acquisitions and sales and supervising asset management for a major U.K. pension fund. Mr. Agnew joined Jones Lang Wootton Fund Management in 1988, having previously worked for Hall Pain & Foster as a Commercial Letting Agent and Henry Butcher & Co as an Investment Surveyor. Mr. Agnew became a Partner of Jones Lang Wootton in 1995 and was promoted to International Director in 2011. From his 25 years in the property business, he has developed substantial experience with investment transactions and managing portfolios that either contain structural risks or have underperformed their benchmarks. Mr. Agnew is a Member of the Royal Institution of Chartered Surveyors and holds an Investment Management Certificate (FSA).

Andrew M. Bull serves as a Regional Director of LaSalle and Fund Manager for LaSalle’s separate accounts in the United Kingdom. In this role, he is responsible for overseeing the property portfolio of a major U.K. pension fund, involving direct and indirect property investments (including unlisted funds, joint ventures and listed securities), and arranging debt financing when required. Mr. Bull is also responsible for defining and implementing investment strategies, purchases, sales and asset management. Mr. Bull joined Jones Lang Wootton, which merged with LaSalle Partners in 2000 to form our sponsor and our advisor, in 1979, and became a partner in 1983. Mr. Bull is a Fellow of the Royal Institution of Chartered Surveyors.

Richard J. Debney serves as a Senior Fund Manager at LaSalle, where he manages a property portfolio on behalf of a major U.K. pension fund. Prior to joining LaSalle, Mr. Debney served as the Head of Property at British Steel Pension Fund. He has 25 years of experience in the real estate industry and is a member of the Royal Institution of Chartered Surveyors. Mr. Debney holds a B.S.C. in Land Management from Reading University.

Stuart Richmond-Watson serves as a Senior Fund Manager managing property portfolios on behalf of U.K. institutional clients and as a Trustee of the Jones Lang LaSalle Pension Fund. Mr. Richmond-Watson joined the Jones Lang Wootton Fund Management department when it was formed in 1988 and, since then, has specialized in the construction and fund management of investment portfolios and the purchase, sale and valuation of investments. Prior to joining Jones Lang Wooton Fund Management, he worked in the commercial property sector of the firm. He began his career at Jones Lang Wootton as a trainee agricultural management surveyor in 1973. Mr. Richmond-Watson is a Fellow of the Royal Institution of Chartered Surveyors and is registered with the Financial Services Authority of the United Kingdom, or the FSA, to conduct Investment Management activities. He holds a M.Sc. from the Royal Agricultural College Cirencester.

Alistair J. Seaton serves as Head of LaSalle’s European Research and Strategy Team. In this role, he is responsible for identifying opportunities in European property markets and developing new ways to analyze

 

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markets and manage portfolios. Prior to joining LaSalle in 2001, Mr. Seaton was a Senior Analyst in the European Research team at Jones Lang LaSalle. He served as an account manager at Investment Property Databank for three years before joining LaSalle. His responsibilities included providing portfolio analysis and benchmarking services to U.K. property company and insurance company clients. He is a member of the Society of Property Researchers and the Investment Property Forum and is registered with the FSA as an Investment Adviser. Mr. Seaton holds a B.S.C. from the University of Edinburgh.

Alan Tripp serves as Managing Director of LaSalle’s U.K. business, with responsibility for overseeing LaSalle’s U.K. separate account business. He is the Chair of the U.K. Management Board and sits on the European Management Board. Mr. Tripp has 30 years of real estate experience as a client and a manager, either directly managing or overseeing a variety of pension fund and life company portfolios of various sizes and with a variety of investment objectives. Prior to joining LaSalle in 2008, Mr. Tripp worked for Invista REIM, where, as Head of HBoS Funds, he was responsible for managing property investment funds. Before joining Investa REIM, he worked for Clerical Medical, the Electricity Supply Pension Scheme and The Carroll Group, a private property company. He is a Member of the Royal Institution of Chartered Surveyors and the Investment Property Forum and is registered with the FSA to conduct investment management activities. Mr. Tripp holds a B.Sc. from the Portsmouth Polytechnic University.

In addition to the persons described above, Ms. Lloyd-Hurwitz and Mr. Marrison also serve on the U.K. Investment Committee. For more information concerning the background and experience of Ms. Lloyd-Hurwitz and Mr. Marrison, see “—Continental Europe Investment Committee.”

The Advisory Agreement

We and our advisor are party to an advisory agreement which is summarized below.

Services

Pursuant to the terms of the advisory agreement, our advisor has responsibility to, among other things:

 

   

consult with our board of directors in formulating our financial, investment, valuation and other policies, consistent with achieving our investment objectives;

 

   

serve as our investment and financial advisor and provide research and economic and statistical data in connection with our assets and investment policies;

 

   

determine the proper allocation of our investments between properties, real estate-related assets and cash, cash equivalents and other short-term investments;

 

   

calculate our NAV at the close of business on each business day in accordance with our valuation guidelines;

 

   

supervise our independent valuation advisor and, if and when necessary, recommend to our board of directors its replacement;

 

   

select joint venture and strategic partners and structure corresponding agreements;

 

   

within the authority granted to the advisor by the board of directors, identify, analyze and complete acquisition and dispositions of investments, and outside of the authority granted by board of directors, identify, analyze and recommend acquisitions and dispositions of investments to the board and complete such transactions on our behalf in accordance with the direction of the board;

 

   

structure the terms of our investments and arrange for financing or refinancing in connection with investments; and

 

   

monitor and manage our investments and provide periodic reports to our board of directors on their performance.

 

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The above summary is provided to illustrate the material functions which our advisor will perform for us as our advisor and it is not intended to include all of the services which may be provided to us by our advisor or third parties. The advisory agreement provides that our advisor may engage one or more sub-advisors to assist our advisor in providing these services; provided, however, that any sub-advisor that performs substantially all of the management function will be deemed to have a fiduciary relationship with us and our stockholders.

Term and Termination Rights

The term of the advisory agreement is for one year, subject to renewals by our board of directors for an unlimited number of successive one-year periods. The independent directors will evaluate the performance of the advisor before renewing the advisory agreement. The advisory agreement may be terminated:

 

   

immediately by us (1) for “cause,” (2) upon the bankruptcy of the advisor, or (3) upon a material breach of the advisory agreement by the advisor;

 

   

upon 60 days’ written notice by us without cause or penalty upon the vote of a majority of our independent directors; or

 

   

upon 60 days’ written notice by our advisor.

“Cause” is defined in the advisory agreement to mean fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by our advisor in connection with performing its duties under the advisory agreement.

In the event the advisory agreement is terminated, our advisor will be entitled to receive its prorated advisory fee through the date of termination. In addition, upon the termination or expiration of the advisory agreement, our advisor will cooperate with us and take all reasonable steps requested to assist our board of directors in making an orderly transition of the advisory function. Before selecting a successor advisor, our board of directors must determine that the successor advisor possess sufficient qualifications to perform the advisory function and to justify the compensation it would receive from us.

Advisory Fee and Expense Reimbursements

As compensation for its services provided pursuant to the advisory agreement, we will pay our advisor an advisory fee comprised of two separate components:

 

  (1)

a fixed component in an amount equal to 1/365th of 1.25% of our NAV for each class of our common stock (Class A, Class E and Class M) for each day, payable monthly in arrears; and

 

  (2) a performance component calculated based on our total return of each class of our common stock (Class A, Class E and Class M) in any calendar year (defined for each class of our common stock as the change in NAV per share for such class plus distributions per share for such class), payable annually in arrears.

We will accrue the fixed component of the advisory fee on a daily basis and the performance component of the advisory fee on a daily basis to the extent that it is earned. The performance component will be calculated such that for any calendar year in which the total return per share for a particular class exceeds 7% per annum, which we refer to as the 7% return, our advisor will receive 10% of the excess total return above the 7% return allocable to that class. The total return to stockholders is defined for each class of common stock as the change in NAV per share for such class plus distributions per share for such class. The NAV per share for a class calculated on the last trading day of a calendar year shall be the amount against which changes in NAV per share are measured during the subsequent calendar year. However, in the event our NAV per share for any class of our common stock decreases below $10.00, the performance component will not be earned on any increase in NAV up to $10.00 per share with respect to that class. The foregoing per share NAV thresholds for each class are

 

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subject to downward adjustment by our board of directors to account for any distributions made after the commencement of this offering that the board of directors deems to be a return of capital to the applicable class of stockholders. Therefore, for each class of our common stock, payment of the performance component of the advisory fee (1) is contingent upon our actual annual total return exceeding the 7% return, (2) will vary in amount based on our actual performance, (3) cannot cause our total return as a percentage of stockholders’ invested capital for the year to be reduced below 7%, and (4) is payable to our advisor if our total return exceeds the 7% return in a particular calendar year, even if the total return to stockholders (or any particular stockholder) on a cumulative basis over any longer or shorter period has been less than 7% per annum. The performance component does not take into account any selling commissions paid by Class A stockholders. The advisor will not be obligated to return any portion of advisory fees paid based on our subsequent performance.

The performance component of the advisory fee is calculated from the total return to stockholders for each class of our common stock over a calendar year. As a result, our advisor may be entitled to receive the performance component with respect to one class of shares but not another and may be entitled to receive compensation under the performance component of the advisory fee for a given year even if some of our stockholders who purchased shares during such year experienced a decline in NAV per share. Similarly, stockholders who request that we repurchase their shares during a given year may have their shares repurchased at a lower NAV per share as a result of an accrual for the estimated performance component of the advisory fee, even if no performance component is ultimately payable to the advisor at the end of such calendar year. In addition, if the NAV of our classes of common stock remains above the threshold levels described in the paragraph above, our advisor’s ability to earn the performance fee in any year will not be affected by poor performance in prior years.

Subject to certain limitations, we will reimburse our advisor for costs and expenses it incurs in connection with the services it provides to us, including, but not limited to:

 

   

organization and offering expenses, which include, legal, accounting and printing fees and expenses attributable to our organization, preparation of the registration statement, registration and qualification of our common stock for sale with the SEC and in the various states and filing fees incurred by our advisor;

 

   

the annual cost of goods and services used by us and obtained from third parties, including brokerage fees paid in connection with the purchase and sale of securities;

 

   

expenses of managing and operating our properties, whether payable to an affiliate or a non-affiliated person;

 

   

acquisition expenses related to the selection and acquisition of assets, whether or not a property is actually acquired; and

 

   

out-of-pocket expenses in connection with providing services to us, including reasonable salaries and wages, benefits and overhead of all personnel that provide services to us; provided, that our advisor does not currently intend to seek reimbursement for any portion of the compensation payable to our executive officers. If our advisor subsequently determines to seek reimbursement for personnel costs of individuals who serve as our executive officers, we will disclose any such reimbursements in our next quarterly or annual reports filed pursuant to SEC requirements.

Our advisor must reimburse us at least quarterly for expense reimbursements paid to our advisor in any four consecutive fiscal quarters commencing with the fourth fiscal quarter following the commencement of this offering to the extent that our total operating expenses exceed the greater of: (1) 2% of our average invested assets; and (2) 25% of our net income. For purposes of these limits, (1) “total operating expenses” are our aggregate expenses of every character paid or incurred as determined under GAAP, including items such as legal, accounting and auditing expenses, the advisory fee, fees of our independent valuation advisor, transfer agent costs, directors and officers’ insurance, board of directors fees and related expenses, and expenses relating to compliance with the Sarbanes-Oxley Act of 2002. Such operating expenses will not include: (a) the expenses of

 

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raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses, and tax incurred in connection with the issuance, distribution, transfer and registration of our shares; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) incentive fees paid in compliance with the North American Securities Administrators Association’s Statement of Policy Regarding Real Estate Investment Trusts, as revised and adopted on May 7, 2007, or the NASAA REIT Guidelines; and (f) acquisition fees, acquisition expenses, brokerage fees on resale of properties and other expenses connected with the acquisition, disposition, management and ownership of real estate interests, mortgage loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property); (2) “average invested assets” is the average of the aggregate book value of our assets (other than intangibles) invested, directly or indirectly, in real estate and other real estate-related assets, before deducting depreciation, bad debts or other non-cash reserves, computed by taking the average of such values at the end of each month during the period; and (3) “net income” is our total revenues less our total expenses excluding reserves for depreciation, bad debts and other similar non-cash reserves and excluding any gain from the sale of our assets.

Notwithstanding the foregoing, to the extent that operating expenses payable or reimbursable by us exceed these limits and the independent directors determine that the excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient, our advisor may be reimbursed in future periods for the full amount of the excess expenses, or any portion thereof. Within 60 days after the end of any fiscal quarters for which our total operating expenses for the four consecutive fiscal quarters then ended exceed these limits, we will send our stockholders a written disclosure of such fact, together with an explanation of the factors our independent directors considered in arriving at the conclusion that such excess expenses were justified. Our independent directors will review the total fees and reimbursements for operating expenses paid to our advisor to determine if they are reasonable in light of our performance, our net assets and our net income and the fees and expenses of other comparable unaffiliated REITs.

Our independent directors will evaluate at least annually whether the compensation that we contract to pay to our advisor is reasonable in relation to the nature and quality of services performed and that such compensation is within the limits prescribed by our charter. The independent directors will supervise the performance of our advisor and the compensation we pay to it to determine that the provisions of the advisory agreement are being carried out. This evaluation will be based on the factors set forth below, as well as any other factors deemed relevant by the independent directors:

 

   

the amount of fees paid to our advisor in relation to the size, composition and performance of our investments;

 

   

the success of our advisor in generating investments that meet our investment objectives;

 

   

rates charged to other externally advised REITs and other similar investment entities by advisors performing similar services;

 

   

additional revenues realized by our advisor and its affiliates through their relationship with us;

 

   

the quality and extent of the services and advice furnished by our advisor; and

 

   

the performance of the assets, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations.

In addition to the advisory fee and expense reimbursements, we have agreed to indemnify and hold harmless our advisor and its affiliates performing services for us from specific claims and liabilities arising out of the performance of their obligations under the advisory agreement, subject to certain limitations. See “—Limited Liability and Indemnification of Directors, Officers, the Advisor and Other Agents” below.

 

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Limited Liability and Indemnification of Directors, Officers, the Advisor and Other Agents

Maryland law permits us to include in our charter a provision limiting the liability of our directors and off