v3.25.2
Related Party Transactions and Arrangements
 6 Months Ended
Jun. 30, 2025
Related Party Transactions [Abstract]  
Related Party Transactions and Arrangements Related Party Transactions and Arrangements
Fees Incurred in Connection with the Operations of the Company Prior to the Internalization
Prior to September 2024, the former Advisor managed the Company’s day-to-day business and received compensation and fees for providing services to the Company pursuant to an advisory agreement. Immediately following the Internalization, the Company and the Advisor (now a wholly owned subsidiary of the Company following the Internalization) terminated the advisory agreement by mutual agreement. The following describes certain expenses and fees that the Company was obligated to pay under the advisory agreement prior to its termination.
Asset Management Fees
Under the limited partnership agreement of the OP (as amended from time to time, the “LPA”) and the previous advisory agreement and until March 31, 2015, for its asset management services, the Company issued the Advisor an asset management subordinated participation by causing the OP to issue to the Advisor partnership units of the OP designated as “Class B Units” (“Class B Units”). The Class B Units were intended to be profit interests and vest, and no longer are subject to forfeiture, at such time as: (x) the value of the OP’s assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “Economic Hurdle”); (y) any one of the following occurs: (1) a listing; (2) another liquidity event or (3) the termination of the advisory agreement by an affirmative vote of a majority of the Company’s independent directors without cause; and (z) the Advisor is still providing advisory services to the Company (the “Performance Condition”). Unvested Class B Units would be forfeited immediately if: (a) the advisory agreement is terminated for any reason other than a termination without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company’s independent directors without cause before the Economic Hurdle has been met.
The Board previously approved the issuance of 359,250 Class B Units to the Advisor in connection with this arrangement. The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the Performance Condition to be probable. As of June 30, 2025, the Company determined that achieving the Performance Condition was not yet considered probable for accounting purposes. The Board determined in February 2018 that the Economic Hurdle had been satisfied, however, none of the events have occurred, including a listing of the Company’s common stock on a national securities exchange, which would have satisfied the other vesting requirement of the Class B Units. Therefore, no expense has ever been recognized in connection with the Class B Units. In connection with the Internalization, immediately prior to Closing, the Advisor transferred 359,250 Class B Units to the Advisor Parent.
The advisory agreement also required the Company to pay the Advisor a base management fee. The fixed portion of the base management fee was equal to $1.625 million per month, while the variable portion of the base management fee was equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity issued by the Company and its subsidiaries subsequent to February 17, 2017 per month. In addition, the advisory agreement required the Company to pay the Advisor certain variable management/incentive fee quarterly in arrears. No incentive fee was incurred for the six months ended June 30, 2024. Upon termination of the advisory agreement, the Company is no longer obligated to pay the base management fee or the variable management/incentive fee.
In connection with the Internalization, on the Closing Date, the Advisor Parent received an asset management fee of $10.9 million, representing the aggregate base management fee that the Company would have been required to pay to the Advisor during the six month notice period required to terminate the advisory agreement, inclusive of $5.5 million of base management fees that the Company would have been required to pay to the Advisor during the remaining three month notice period following the Closing Date.
Professional Fees and Other Reimbursements
Prior to the termination of the advisory agreement, the Company reimbursed the Advisor’s costs of providing administrative services including personnel costs. During the three and six months ended June 30, 2024, the Company incurred $3.0 million and $7.0 million, respectively, of reimbursement expenses from the Advisor for providing administrative services. These reimbursement expenses were included in general and administrative expense in the consolidated statements of operations and comprehensive loss. The Advisor was also reimbursed for services provided for which it incurred investment-related expenses or insourced expenses.
Property Management Fees
Until the Property Manager became the Company’s wholly-owned subsidiary as part of the Internalization, the Company paid the Property Manager a property management fee on a monthly basis, equal to 1.5% of gross revenues from the Company’s stand-alone single-tenant net leased properties managed and 2.5% of gross revenues from all other types of properties managed, plus market-based leasing commissions applicable to the geographic location of the property. The Company also reimbursed the Property Manager for property level expenses incurred by the Property Manager.
Summary of Related Party Expenses and Payables
The following table details amounts incurred and payable in connection with the Company’s operations-related services described above as of and for the periods presented:
Three Months Ended June 30,Six Months Ended June 30,Payable (Prepayments) as of
 2025202420252024
(In thousands)IncurredIncurred
Incurred
IncurredJune 30,
2025		December 31, 2024
Non-recurring fees and reimbursements:
Acquisition cost reimbursements$— $— $— $20 $— $— 
Termination fees (1)
— 98,241 — 98,241 — 30,267 
Ongoing fees and reimbursements:
Asset management fees — 5,458 — 10,916 — — 
Professional fees and other reimbursements (2)
— 3,021 — 6,980 

— — 
Property management fees (3)
— 1,022 — 2,492 — — 
Total related party operation fees and reimbursements$— $107,742 $— $118,649 $— $30,267 
___________
(1)Reflects the Promissory Note issued to the Advisor Parent in connection with the Internalization, which was repaid in full in January 2025.
(2)Included in general and administrative expenses in the consolidated statements of operations.
(3)The three months and six ended June 30, 2024 include $0.1 million and $0.6 million, respectively, of leasing commissions which are capitalized and included in deferred costs, net on the Company’s consolidated balance sheets.
Internalization
For details regarding the terms of the Internalization, see Note 1 — Organization — Internalization.
Fees and Participations Incurred in Connection with a Listing or the Liquidation of the Company’s Real Estate Assets
Fees Incurred in Connection with a Listing
Under the LPA, if the common stock of the Company is listed on a national securities exchange, an affiliate of the Advisor Parent will be entitled to receive a promissory note as evidence of its right to receive a subordinated incentive listing distribution from the OP equal to 15.0% of the amount by which (i) the market value of all issued and outstanding shares of common stock at the time of listing plus distributions since the Company’s initial public offering of common stock in 2013 exceeds (ii) the aggregate capital contributed by the original investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to the original investors in the Company’s initial public offering of common stock in 2013. None of these distributions has been earned through the date of this Quarterly Report on Form 10-Q and no such distribution was incurred during the three and six months ended June 30, 2025 or 2024. The Company currently expects it is highly unlikely that the OP will be obligated to make such a subordinated incentive listing distribution.
Subordinated Participation in Net Sales Proceeds
Under the LPA, upon a liquidation or sale of all or substantially all of the Company’s assets, including through a merger or sale of stock, an affiliate of the Advisor Parent will be entitled to receive a subordinated participation in the net sales proceeds of the sale of real estate assets from the OP equal to 15.0% of remaining net sale proceeds after return of capital contributions to the original investors in the Company’s initial public offering of common stock in 2013 plus payment to investors of a 6.0% cumulative, pre-tax non-compounded annual return on the capital contributed by investors. None of these distributions has been earned through the date of this Quarterly Report on Form 10-Q and no such participation in net sales proceeds became due and payable during the three and six months ended June 30, 2025 or 2024.
Termination Fees
Under the LPA, upon termination or non-renewal of the advisory agreement with the Advisor, with or without cause, an affiliate of the Advisor Parent was entitled to receive a promissory note as evidence of its right to receive subordinated termination distributions from the OP equal to 15.0% of the amount by which the sum of the Company’s market value plus distributions exceeds the sum of the aggregate capital contributed plus an amount equal to a 6.0% cumulative, pre-tax, non-compounded annual return to investors in the Company’s initial public offering of common stock in 2013. However, in accordance with the terms of the LPA, in connection with the Internalization and the Company’s termination of the Advisory Agreement, the affiliate of the Advisor Parent deferred its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs. None of these fees has been earned through the date of this Quarterly Report on Form 10-Q and no such fees became due and payable during the six months ended June 30, 2025 or 2024. The Company currently expects it is highly unlikely that the OP will be obligated to make such subordinated termination distributions.