Fifteenth Amended and Restated Advisory Agreement, effective April 1, 2025
Exhibit 10.1
FIFTEENTH AMENDED AND RESTATED ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT (the “Agreement”), dated effective as of April 1, 2025 (the “Effective Date”), is among Sterling Real Estate Trust d/b/a Sterling Multifamily Trust, an unincorporated North Dakota business trust (the “Company”), Sterling Properties, LLLP, d/b/a Sterling Multifamily Properties, LLLP, a North Dakota limited liability limited partnership (“Operating Partnership”) and Sterling Management, LLC, a North Dakota limited liability company (the “Advisor”).
W I T N E S S E T H
WHEREAS, the Company qualifies as a real estate investment trust (a “REIT”), as defined in Sections 856 through 860 of the Code and intends to continue to make investments of the type permitted by qualified REITs and consistent with the governing documents of the Company;
WHEREAS, the Company is the general partner of the Operating Partnership and intends to conduct all of its business and make substantially all Investments through the Operating Partnership;
WHEREAS, the Company and the Operating Partnership desire to retain the Advisor to perform the duties and undertake the responsibilities hereinafter set forth, on behalf of, and subject to the supervision, of the Board, all as provided herein; and
WHEREAS, the Advisor is willing to render such services and undertake such responsibilities, subject to the supervision of the Board, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
Acquisition Expenses. Any and all expenses incurred by the Company, the Operating Partnership, the Advisor or any of their Affiliates in connection with the selection, acquisition, origination, making or development of any Investments, whether or not acquired, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on assets not acquired, accounting fees and expenses, title insurance premiums and the costs of performing due diligence.
Acquisition Fees. Any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Company or the Advisor) in connection with acquiring Investments, including but not limited to the development or construction of a property, including real estate commissions, selection fees and nonrecurring management fees. Excluded shall be loan fees, points or any other fees of a similar nature, as well as development fees and construction fees paid to any Person not an Affiliate of the Advisor in connection with the actual development and construction of a property.
Affiliate or Affiliated. With respect to any Person, (i) any party directly or indirectly owning, controlling or holding the power to vote 10% of more of the outstanding voting securities of such Person; (ii) any party 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by the Person; (iii) any party directly or indirectly controlling, controlled by or under common control with the Person; (iv) any executive officer, director, trustee or general partner of the Person; or (v) any legal entity for which the Person acts as an executive officer, director, trustee or general partner.
Assets Under Management (AUM). The total gross book value of all assets managed by the Advisor on behalf of the Company, calculated in accordance with GAAP, which shall include the Company’s proportional ownership share of:
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A. | Real Estate Assets: |
iii. | Land holdings, recorded at historical cost. |
B. | Investments: |
ii. | Marketable securities. |
iii. | Any other business investments. |
C. | Cash and Restricted Cash: |
Average Invested Assets. For a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly by the Operating Partnership, in Investments 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 such period.
Board. The board of trustees of the Company, as of any particular time.
Bylaws. The bylaws of the Company, as the same are in effect from time to time.
Cause. With respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Advisor in connection with performing its duties hereunder.
Code. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Development Fees. Fees for Development Services requested by the Company or the Operating Partnership in connection with Company-authorized Development Projects.
Development Projects. The development and construction of buildings and improvements upon previously unimproved land owned from time to time by the Company or the Operating Partnership, either directly or indirectly, including through Joint Ventures. Repairs to and rebuilding, remodeling and renovation of existing buildings and improvements and similar capital improvement projects are excluded from the definition of Development Projects.
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Development Services. Services requested by the Company or the Operating Partnership in connection with the development and construction of Company-authorized Development Projects, including initiating, coordinating, and administering all planning, design, and construction activities, obtaining governmental approvals, developing budgets and schedules, and overseeing construction of improvements.
Distributions. Any distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes. In connection with the Operating Partnership, any distributions of money or other property of an Operating Partner to owners of its partnership interests, including distributions that may constitute a return of capital for federal income tax purposes.
Excess Amount. Excess Amount shall have the meaning set forth in Section 13.
Expense Year. Expense Year shall have the meaning set forth in Section 13.
GAAP. Generally accepted accounting principles as in effect in the United States of America from time to
time.
Governing Instruments. The Articles of Organization, Declaration of Trust and Bylaws of the Company, as amended from time to time.
Indemnitee. Indemnitee and Indemnitees shall have the meaning set forth in Section 20 herein.
Independent Trustee. Independent Trustee shall have the meaning set forth in the Governing Instruments and the Operating Partnership Agreement.
Investment Company Act. The Investment Company Act of 1940, as amended.
Investments. Any investments by the Company or an Operating Partnership in Real Estate Assets and Other Real Estate Related Investments.
Joint Ventures. The joint venture or partnership arrangements (other than with an Operating Partnership) in which the Company or any of its subsidiaries is a co-venturer or general partner which are established to acquire Investments.
Listing. The listing of the Shares on a national securities exchange or the receipt by the Shareholders of securities that are listed on a national securities exchange in exchange for the Company’s common stock. Upon such Listing, the Shares shall be deemed Listed.
Loans. Any indebtedness or obligations in respect of borrowed money or evidenced by bonds, notes, debentures, deeds of trust, letters of credit or similar instruments, including mortgages and mezzanine loans.
Management Fee. The fee payable to the Advisor pursuant to Section 10.
NASAA REIT Guidelines. The Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association on May 7, 2007, as may be amended from time to time.
Net Income. For any period, the Company’s total revenues applicable to such period, less the total expenses applicable to such period other than additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the Sale of the Company’s assets.
Operating Partnership Agreement. The Limited Liability Limited Partnership Agreement of the Operating Partnership as may be amended from time to time.
Organizational and Offering Expenses. Organizational and Offering Expenses means all expenses incurred by or on behalf of the Company and the Operating Partnership in connection with their formation and
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preparing the Company and Operating Partnership for any private offering of their securities, any registration of the Company’s Shares, Listing of the Shares and any subsequent public offering of the Company’s Shares, whether incurred before or after the date of this Agreement, which may include but are not limited to: total underwriting and brokerage discounts and commissions (including fees of the underwriters’ or brokers’ attorneys); any expense allowance of an underwriter or broker; any reimbursement of expenses of an underwriter or broker; expenses for printing, engraving and mailing offering documents; telephone and other telecommunications costs; all advertising and marketing expenses (including the costs related to investor and broker-dealer sales meetings); charges of transfer agents, registrars, trustees, escrow agents, depositaries and experts; expenses regarding the registration or compliance with exemption requirements in connection with any sale of the Company’s or the Operating Partnership’s securities under federal and applicable state securities laws; and related taxes and fees and accountants’ and attorneys’ fees.
Other Real Estate Related Investments. Any investments by the Company or the Operating Partnership in debt and equity interests backed by real estate, including (i) real estate securities such as common stocks, preferred stocks and options to acquire stock in REITs and other real estate companies and (ii) debt-related investments such as
(a) mortgage, mezzanine, bridge and other loans and (b) debt and derivative securities related to real estate assets including mortgage-backed securities, collateralized debt obligations, debt securities issued by real estate companies and credit default swaps.
Partnership Interests. The partnership interests of the Operating Partnership.
Partners. The holders of the Partnership Interests.
Person. An individual, corporation, partnership, trust, joint venture, limited liability company or other entity.
Real Estate Assets. Any investments by the Company or the Operating Partnership in unimproved and improved Real Property (including, without limitation, fee or leasehold interests, options and leases) either directly or through a Joint Venture.
Real Property. Real property owned from time to time by the Company or the Operating Partnership, either directly or through Joint Ventures, which consists of (i) land only, (ii) land, including the buildings located thereon,
(iii) buildings only or (iv) such investments the Board and the Advisor mutually designate as Real Property to the extent such investments could be classified as Real Property.
REIT. A “real estate investment trust” under Sections 856 through 860 of the Code or as may be amended.
Related Party. With respect to any Person, any other Person whose ownership of Shares would be attributed to the first such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)).
Sale or Sales. Any transaction or series of transactions whereby: (A) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys or relinquishes its ownership of any Real Property or portion thereof, including the lease of any Real Property consisting of a building only, and including any event with respect to any Real Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys or relinquishes its ownership of all or substantially all of the interest of the Company or the Operating Partnership in any Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture directly or indirectly (except as described in other subsections of this definition) in which the Company or the Operating Partnership as a co-venturer or partner sells, grants, transfers, conveys or relinquishes its ownership of any Real Property or portion thereof, including any event with respect to any Real Property which gives rise to insurance claims or condemnation awards; (D) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, conveys or relinquishes its interest in any Other Real Estate Related Investment or portion thereof (including with respect to any Loan, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments) and any event which gives rise to a significant amount of insurance proceeds or similar awards; or
(E) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys or relinquishes its ownership of any other asset not previously described in
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this definition or any portion thereof, but not including any transaction or series of transactions specified in clauses
(A) through (E) above in which the proceeds of such transaction or series of transactions are reinvested by the Company or the Operating Partnership in one or more assets within 180 days thereafter.
Securities Act. The Securities Act of 1933, as amended. Shares. The shares of common stock of the Company. Shareholders. The holders of the Shares.
Termination Date. The date of termination of this Agreement or expiration of this Agreement in the event this Agreement is not renewed for an additional term.
Total Operating Expenses. All costs and expenses paid or incurred by the Company and the Operating Partnership, as determined under GAAP, that are in any way related to the operation of the Company and the Operating Partnership or their business, including the Management Fees paid to the Advisor, but excluding (i) the expenses of raising capital including Organization and Offering Expenses, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) incentive fees paid under the Operating Partnership Agreement; (vi) Acquisition Expenses, (vii) real estate commissions on the Sale of Real Property, and
(viii) other fees and expenses connected with the acquisition, disposition, management and ownership of Investments (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property). The definition of “Total Operating Expenses” set forth above is intended to encompass only those expenses which are required to be treated as Total Operating Expenses under the NASAA REIT Guidelines. As a result, and notwithstanding the definition set forth above, any expense of the Company which is not part of Total Operating Expenses under the NASAA REIT Guidelines shall not be treated as part of Total Operating Expenses for purposes hereof.
Trustee. A member of the Board.
2%/25% Guidelines. 2%/25% Guidelines shall have the meaning set forth in Section 13.
Valuation Guidelines. The valuation guidelines adopted by the Board, as amended from time to time.
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(e) | subject to the provisions of Section 4 hereof, (i) locate, analyze and select potential Investments; |
(ii) structure and negotiate the terms and conditions of transactions pursuant to which acquisitions and dispositions of Investments will be made; (iii) research, identify, review and recommend acquisitions and dispositions of Investments to the Board; (iv) acquire and dispose of the Investments on behalf of the Company and the Operating Partnership in compliance with the investment objectives and policies of the Company; (v) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the Sale of, or otherwise deal with, Investments; (vi) enter into leases and service contracts for Investments and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Investments; (vii) actively oversee and manage Investments for purposes of meeting the Company’s investment objectives; (viii) select Joint Venture partners, structure corresponding agreements and oversee and monitor these relationships; (ix) oversee Affiliated and non-Affiliated property managers who perform services for the Company or the Operating Partnership; (x) oversee Affiliated and non-Affiliated Persons with whom the Advisor contracts to perform other services required to be performed under this Agreement; and (xi) manage accounting and other record- keeping functions for the Company and the Operating Partnership;
(k) | provide the Company and the Operating Partnership with all necessary cash management |
services;
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(y) | do all things necessary to assure its ability to render the services described in this Agreement; |
(aa) use commercially reasonable efforts to cause the Company and the Operating Partnership to comply with all applicable laws.
4. | AUTHORITY OF ADVISOR. |
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(c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, the Operating Partnership or their securities, or otherwise not permitted by the Governing Instruments of the Company or the Operating Partnership Agreement, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Trustees of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given. Notwithstanding the foregoing, the governors, officers, employees and members of the Advisor or an Affiliate of the Advisor shall not be liable to the Company, Operating Partnership or holders of their securities for any act or omission by the Advisor taken or omitted to be taken in the performance of Advisor’s duties under this Agreement except as provided in Section 21 of this Agreement.
10. | FEES. |
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Total Cost | Fee | Range of Fee | Formula |
0 - 10M | 5.0% | 0 - .5 M | 0M + 5.0% x (TC - 0M) |
10M - 20M | 4.5% | .5 M - .95M | .50M + 4.5% x (TC - 10M) |
20M - 30M | 4.0% | .95M - 1.35M | .95M + 4.0% x (TC - 20M) |
30M - 40M | 3.5% | 1.35M - 1.70M | 1.35M + 3.5% x (TC - 30M) |
40M - 50M | 3.0% | 1.70M - 2.00M | 1.70M + 3.0% x (TC - 40M) |
“Total Project Cost” shall be defined as the total of all hard and soft costs (excluding the cost of the subject land) incurred on the Company-authorized Development Project.
If Advisor shares responsibility for providing Development Services with one or more third parties, Advisor’s set Development Fee shall be reduced by the fees charged by any such third parties; provided, such adjustment is subject to a 2.5% minimum Advisor’s Development Fee. Additionally, in cases where the Advisor is sharing responsibility for providing Development Services, the Development Fee shall be capped at 2.5% of $20,000,000 ($500,000).
If the Operating Partnership directly or indirectly owns less than 100% of the property subject to the Development Project, the Development Fee payable to Advisor shall be further reduced commensurate with the Operating Partnership’s ownership percentage.
The following examples illustrate the calculation of the set Development Fee payable to Advisor under various scenarios. Each scenario is based on a $10 Million Development Project with a Development Fee calculated in accordance with the above schedule of $500,000 ($10M x 5.0%).
$500,000 Development Fee subject to the Hold-back described below. If the Operating Partnership owns 60% of the Development Project, Advisor’s Development Fee would be $300,000 ($500,000 x 60%).
$300,000 = $200,000 which is less than the $250,000 minimum. If the Operating Partnership owns 60% of the Development Project, Advisor’s Development Fee under the foregoing scenarios would be further reduced to $180,000 ($300,000 x 60%) and $150,000 ($250,000 x 60%), respectively, subject to the Hold-back described below.
The Development Fee shall be calculated and paid when Advisor delivers a certificate of occupancy for the structure which is the subject of the authorized Development Project. If an authorized Development Project
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involves multiple structures to be completed over time, the Development Fee shall be calculated and paid in increments upon delivery of each individual structure’s certificate of occupancy.
Except in circumstances where a target cap rate would not apply, Company shall retain ten percent (10%) of each Development Fee payment (the “Hold-back”) until such time as the authorized Development Project achieves financial performance at a cap rate equal to or greater than the cap rate target agreed to by Advisor and Company at the time the Development Project was approved by the Board of Trustees or its Executive Committee.
11. | EXPENSES. |
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13. | REIMBURSEMENT TO THE ADVISOR. |
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14. | OTHER ACTIVITIES OF THE ADVISOR. |
15. | RELATIONSHIP OF THE PARTIES/NO PARTNERSHIP OR JOINT VENTURE. The Company |
and the Operating Partnership, on the one hand, and the Advisor on the other, are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers or impose any liability as such on either of them.
(ii) upon sixty (60) days written notice without Cause by a majority of the Independent Trustee of the Board; or
(iii) upon sixty (60) days written notice by the Advisor. The provisions of Sections 19 through 23 survive termination of this Agreement.
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19. | PAYMENTS TO AND DUTIES OF ADVISOR UPON TERMINATION. |
(b) | The Advisor shall promptly upon termination: |
20. | INDEMNIFICATION BY THE COMPANY AND THE OPERATING PARTNERSHIP. To the |
extent permitted by their governing documents, the Company and the Operating Partnership shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, partners and employees (the “Indemnitees,” and each an “Indemnitee”), from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable hourly attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, and to the extent that such indemnification would not be inconsistent with the laws of the State of North Dakota or the Governing Instruments.
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(ii) to legal counsel, accountants and other professional advisors; (iii) to appraisers, financing sources and others in the ordinary course of the Company’s or Operating Partnership’s business; (iv) to government officials having jurisdiction over the Company, Operating Partnership or the Investments; (v) in connection with any governmental or regulatory filings of the Company or Operating Partnership or disclosure or presentations to the Company’s or Operating Partnership’s investors, Shareholders or Partners; or (vi) as required by law or legal process . The foregoing shall not apply to information which has previously become publicly available through the actions of a Person other than the Advisor not resulting from Advisor’s violation of this section. This section shall survive termination of this Agreement for a period of two years.
To the Company, Operating Partnership or the Board: | Sterling Multifamily Trust |
| P.O. Box 2108 |
| Fargo, ND, 58107 |
| Phone: (701) 353-2720 |
| Attention: CEO |
To the Advisor: | Sterling Management, LLC |
| P.O. Box 2108 Fargo, ND 58107 |
| Phone: (701) 353-2720 |
| Attention: General Counsel & Secretary |
Any party may at any time give notice in writing to the other parties of a change in its address or fax number for the purposes of this Section 24.
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[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as of the date and year first above written.
COMPANY:
STERLING REAL ESTATE TRUST
D/B/A STERLING MULTIFAMILY TRUST
By: /s/ Lance R. Wolf
Lance R. Wolf
Name: ____________________________________
Chairman of the Board
Title: _____________________________________
OPERATING PARTNERSHIP: STERLING PROPERTIES, LLLP
D/B/A STERLING MULTIFAMILY PROPERTIES, LLLP
BY: STERLING REAL ESTATE TRUST
D/B/A STERLING MULTIFAMILY TRUST
Its General Partner
By: /s/ Lance R. Wolf
Lance R. Wolf
Name: ____________________________________
Chairman of the Board
Title: _____________________________________
ADVISOR:
STERLING MANAGEMENT, LLC
By: /s/ Megan E. Schreiner
Name: _Megan E. Schreiner__________________
Title: __President___________________________
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