Business description of INPOINT-COMMERCIAL-REAL-ESTATE-INCOME-INC from last 10-k form

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission file number 000-55782

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in its charter)

(800) 826-8228

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Class P Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    

Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒    No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☒

While there is no established market for the registrant’s shares of common stock, the registrant currently is conducting a private offering of its shares of common stock pursuant to which it is selling shares of its Class P Common Stock for $25.00 per share, plus applicable selling commissions, dealer manager fees and organization and offering expenses, with discounts available for certain categories of purchasers. The aggregate value of the registrant’s Class P Common Stock held by non-affiliates as of June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was $11,371,463 based on a price of $25.00 per share of Class P Common Stock. As of March 14, 2018, there were 2,328,726 shares of the registrant’s Class P Common Stock outstanding.

TABLE OF CONTENTS

Item 1. Business.

General

InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) is  a Maryland corporation formed in September 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans and (ii) CRE securities, such as commercial mortgage-backed securities (“CMBS”), senior unsecured debt of publicly traded real estate investment trusts (“REITs”), and collateralized debt obligation (“CDO”) notes. We may also invest in select equity investments in single-tenant, net leased properties. Substantially all of our business is conducted through our operating partnership, InPoint REIT Operating Partnership, LP, of which we are the sole general partner.  We are externally managed by Inland InPoint Advisor, LLC (the “Advisor”), an indirect subsidiary of Inland Real Estate Investment Corporation (“IREIC”), which is a member of The Inland Real Estate Group of Companies, Inc. (“Inland”). The Advisor has engaged SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a subsidiary of Sound Point CRE Management, LP, to perform certain services on behalf of the Advisor for us.

On October 25, 2016, we commenced a private offering (the “Offering”) of up to $500,000,000 in our Class P shares of common stock (the “Class P Shares”). The purchase price per Class P Share in the Offering currently equals $25.00 (the “Transaction Price”) plus applicable selling commissions, dealer manager fees and organization and offering expenses, resulting in a total purchase price of $27.38 per Class P Share if maximum selling commissions, dealer manager fees and organization and offering expenses are paid. Inland Securities Corporation (the “Dealer Manager”), an affiliate of the Advisor, is the dealer manager for the Offering.

We intend to determine our net asset value (“NAV”) no later than the earliest of (i) November 16, 2019, which is the third anniversary of the first sale of Class P Shares in the Offering, or (ii) the first anniversary of the commencement of our initial public offering, unless our board of directors determines to cause such calculation to be performed earlier. We refer to the date upon which our NAV is first determined as the “NAV Pricing Date.” Commencing with the NAV Pricing Date, the Advisor will be responsible for calculating our NAV and our NAV per share for each class of common stock at the end of each calendar quarter. The Advisor will delegate responsibility for the calculation of our NAV per share to a third-party firm with expertise in fund administrative services (the “Fund Administrator”), which will calculate our NAV per share under the supervision of the Advisor.

As of March 14, 2018, we had received and accepted investors’ subscriptions for and issued 2,328,726 Class P Shares in the Offering, resulting in gross proceeds of $62,487,460. As of March 14, 2018, $437,512,540 of Class P Shares remained to be sold in the Offering.

Investment Portfolio

Our objective is to originate, acquire and manage an investment portfolio of CRE debt and CRE securities that is diversified based on the type and location of collateral securing the underlying CRE debt and CRE securities.  We anticipate our investment portfolio will be less diversified and have higher concentrations in asset class, collateral type and geographic location until our capital raise reaches levels that will allow for the diversification.

As of December 31, 2017, our investment portfolio consisted of $32,094,441 in commercial mortgage loans held for investment and $25,993,258 in CMBS.  We originated the commercial mortgage loans and purchased the CMBS during 2017.

Competition

Our net income depends, in large part, on our ability to originate loans and acquire assets at favorable spreads over our borrowing costs. In acquiring our investments, we compete with other REITs, specialty finance companies, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. In addition, there are numerous REITs with similar asset acquisition objectives. These other REITs increase competition for the available supply of mortgage assets suitable for purchase. Many of our competitors are significantly larger than we are, have access to greater capital and other resources and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can. Market conditions may attract more competitors, which may increase the competition for sources of financing. An increase in the competition for sources of financing could adversely affect the availability and cost of financing.

We rely on the Sub-Advisor’s professionals and their industry expertise, which we believe provides us with a competitive advantage. These professionals help us assess investment risks and determine appropriate pricing for our mortgage loans and potential investments. These relationships enable us to compete more effectively for attractive investment opportunities. Despite certain competitive advantages, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. We operate in a highly competitive market for investment opportunities and competition may limit our ability to acquire desirable investments in our target assets and could also affect the pricing of these investments.

Employees

We do not have any employees. In addition, all of our executive officers are officers of the Advisor, the Sub-Advisor or one or more of their affiliates and are compensated by those entities, in part, for their services rendered to us. We neither separately compensate our executive officers for their service as officers, nor do we reimburse either the Advisor or the Sub-Advisor for any compensation paid to individuals who also serve as our executive officers.

Tax Status

We believe we have operated, and we intend to continue to operate in a manner that will allow us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ending December 31, 2017. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to our shareholders and maintain our qualification as a REIT.  

Our Corporate Information

Our principal executive offices are located at 2901 Butterfield Rd., Oak Brook, Illinois 60523, and our telephone number is (800) 826-8228.  We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (“SEC”). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Item 1A. Risk Factors.

Risks Related to an Investment in Our Company

We have a limited operating history and there is no assurance that we will be able to successfully achieve our investment objectives.

We are a recently formed entity with a limited operating history and may not be able to achieve our investment objectives. We cannot assure stockholders that the past experiences of affiliates of the Advisor or the Sub-Advisor will be sufficient to allow us to successfully achieve our investment objectives. As a result, an investment in our shares of common stock may entail more risk than the shares of common stock of a REIT with a substantial operating history.

There is no public trading market for shares of our common stock; therefore, our stockholders’ ability to dispose of their shares will likely be limited to repurchase by us. If stockholders do sell their shares to us, they may receive less than the price they paid.

There is no current public trading market for shares of our common stock, and we do not expect that such a market will ever develop. Therefore, repurchase of shares by us will likely be the only way for stockholders to dispose of their shares. Prior to the NAV Pricing Date, we will only repurchase shares in the case of death or disability. As a result, stockholders may be unable to have their shares repurchased by us until the NAV Pricing Date, if at all. Following the NAV Pricing Date, we intend to repurchase Class P Shares on a monthly basis at a price equal to our most recently determined NAV per Class P Share on the date the repurchase request is processed, and not based on the price at which a stockholder initially purchased his, her or its shares. As a result, stockholders may receive less than the price they paid for their shares when they sell them to us pursuant to our repurchase program.

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

Following the NAV Pricing Date, we expect that the total amount of all classes of shares that we will repurchase in any calendar quarter will be capped at 5% of the total NAV as of the end of the prior calendar quarter. The vast majority of our assets cannot be

readily liquidated without impacting our ability to realize full value upon their disposition. Therefore, we may not always have a sufficient amount of cash to immediately satisfy repurchase requests. 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 being repurchased, then our board of directors may modify or suspend our share repurchase program. Because our board of directors is not required to authorize the recommencement of the share repurchase program within any specified period of time, our board may effectively terminate the plan by suspending it indefinitely. As a result, our stockholders’ ability to have their shares repurchased by us may be limited and at times they may not be able to liquidate their investment.

The amount and source of distributions we may make to our stockholders is uncertain, and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future.

We have not established a minimum distribution payment level, and our ability to make distributions to our stockholders may be adversely affected by a number of factors, including the risk factors described in this Annual Report on Form 10-K. Because we currently have limited assets, we may not generate sufficient income to make distributions to our stockholders. Our board of directors will make determinations regarding distributions based upon, among other factors, our financial performance, debt service obligations, debt covenants and capital expenditure requirements. Among the factors that could impair our ability to make distributions to our stockholders are: