AI Track: Are They Truly Identical?

Mark Kosanke Executive Member and Due Diligence Officer of Concorde Financial President Elect of REISA Over 20 years of real estate and securities experience CPA David Kelsey Managing Principal of Hamilton Point Investments founded in Previously, principal of Trinity Hotel Investors ($500mm in RE) and senior VP with Bear Searns & Co of RE and Lodging Over 25 years of real estate investing, lending and advisor business\

Matt Fries Chief Operating Office for Questar Capital. Responsible for investment products offered by firm, including RIA, brokerage and alternative investments. Also, oversees the suitability and account opening process for Questar Capital. Scott Smith – Speaker President – FactRight and FR Risk Management

Agenda Examine and compare risks of non-traded REITs and non- traded BDCs Review similarities Compare differences in structure Deep dive comparison of portfolio risk between structures Risks from experiences with FINRA/SEC examinations

ntREITs and ntBDCs - Similarities General accreditation: Investors in both must meet minimum suitability standards. Regulatory oversight: Both are SEC registered, subject to standard SEC financial reporting requirements, subject to state and NASAA regulations, and must comply with Sarbanes-Oxley. Pass-through tax treatment: Both must distribute at least 90% of income to avoid corporate-level income tax and must meet various asset and income tests. High front-end load: Both generally have a 7% commission, 3% dealer manager fee, and 1.5% allowance for organization and offering expenses. Dividend reinvestment plan: Both allow reinvestments priced below the offering price. Multiple offering periods: Both may have multiple offering periods. General Investment Goals: Both are structured to protect capital, provide for income, and potentially produce capital appreciation. Minimum suitability is currently (1) $70,000 adjusted gross income and $70,000 net worth, or (2) $250,000 net worth.

Differences -ntBDC ntREIT

Portfolio Construction ntBDCntREIT Registered Securities Act (‘34) Reports - Exchange Act (’34) Registered Securities Act (‘34) Reports - Exchange Act (’34) Portfolio regulated by 40 Act BDCs must invest at least 70% of assets in a portfolio of “qualifying investments” “Qualifying investments” = thinly traded public US companies with a public float of less than $250mm BDCs must have asset coverage of at least 200% (50% leverage loan to value) Advisor must be RIA Portfolio limited to real estate interests as described in prospectus No regulatory restrictions on type or size of asset class Limited to 75% leverage loan to value No RIA requirement for advisor

Assessing Portfolio RIsk Does it focus on debt or equity securities or both? How does that affect risk/reward structure? Where will it position itself along the spectrum of risk? Which types of securities within an asset class will it emphasize? How broad is the investment strategy REITs – single asset class or multiple? BDCs – diversify, industry specific or sub industry focus? How is the portfolio managed and by whom External advisors and sub-advisors How are they built to behave in an expansionary economy vs. a economic contraction?

Valuing the Portfolio Valuation Requirements ntREITs – value no later than 18 months after offering closes; no uniformity in method ntBDCs – value each portfolio asset separately and quarterly according to defined accounting standards Offering Pricing ntREITs – typically $10 initial offering price; adjusts at 18 months after offering closes or sooner at advisor discretion ntBDCs – adjusts quarterly if NAV increases or decreases by 2.5% or more

Regulatory Risks Where are FINRA/SEC Examiners Focused During Exams