Clipper Realty
Annual Report 2020

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 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: 001-38010 CLIPPER REALTY INC. (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 47-4579660 (I.R.S. Employer Identification No.) 4611 12th Avenue, Suite 1L Brooklyn, New York 11219 (Address of principal executive offices) (Zip Code) (718) 438-2804 (Registrant's telephone number, including area code) Title of each class Common Stock, par value $0.01 per share Securities registered pursuant to Section 12(b) of the Act: Trading Symbol CLPR Name of each exchange on which registered New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No X Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No X 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 such filing requirements for the past 90 days. Yes X No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes X No ☐ 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Non-accelerated filer ☐ Accelerated filer X Smaller reporting company X Emerging growth company X 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No X Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter, based on the June 30, 2020, closing price of our Class A common stock on the New York Stock Exchange – $117,258,160 As of March 16, 2021, there were 16,063,228 shares of the registrant’s Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant intends to file a Proxy Statement relating to its 2021 Annual Meeting of Shareholders no later than 120 days after the end of its fiscal year, which will include the information required by Part III of Form 10-K. TABLE OF CONTENTS PART I SUMMARY OF RISK FACTORS ITEM 1. BUSINESS ITEM 1A. RISK FACTORS CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. MINE SAFETY DISCLOSURE PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES ITEM 9B. OTHER INFORMATION PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1 PAGE 2 2 7 31 32 37 37 37 40 41 53 53 53 53 54 55 55 55 55 55 56 SUMMARY OF RISK FACTORS PART I Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, liquidity, results of operations and prospects. These risks are discussed more fully in Item 1A. Risk Factors. These risks include, but are not limited to, the following: ● The ongoing COVID-19 pandemic, and measures intended to curb its spread, could have a material adverse impact on our business, financial condition, liquidity and results of operations; ● Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses, and the overall market value of our assets, impair our ability to sell, recapitalize or refinance our assets and have an adverse effect on our results of operations, financial condition, cash flow and our ability to make distributions to our stockholders; ● Multifamily residential properties are subject to rent stabilization regulations, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by tenants that their rents exceed such specified maximum amounts; ● All of our properties are located in New York City, and adverse economic or regulatory developments in New York City or parts thereof, including the boroughs of Brooklyn and Manhattan, could negatively affect our results of operations, financial condition, cash flow, and ability to make distributions to our stockholders; ● We depend on a single government tenant in our office buildings, which could cause an adverse effect on us, including our results of operations and cash flow, if the City of New York were to suffer financial difficulty; ● Our portfolio’s revenue is currently generated from seven properties; ● We may be unable to renew leases or lease currently vacant space or vacating space on favorable terms or at all as leases expire or terminate, which could adversely affect our financial condition, results of operations and cash flow; ● The actual rents we receive for the properties in our portfolio may be less than market rents, and we may experience a decline in realized rental rates, which could adversely affect our financial condition, results of operations and cash flow. Short-term leases with respect to our residential tenants expose us to the effects of declining market rents; ● We may engage in development, redevelopment or repositioning activities, which could expose us to different risks that could adversely affect us, including our financial condition, cash flow and results of operations; ● We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, generate positive cash flows or to make real estate properties suitable for sale, which could adversely affect us, including our financial condition, results of operations and cash flow; ● The impact of the restatement of our financial statements and management’s recently identified material weakness in our internal control over financial reporting; 2 ● Real estate investments are relatively illiquid and may limit our flexibility; ● Competition could limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities, which may adversely affect us, including our profitability, and impede our growth; ● Competition may impede our ability to attract or retain tenants or re-lease space, which could adversely affect our results of operations and cash flow; ● We may acquire properties or portfolios of properties through tax-deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets; ● Capital and credit market conditions may adversely affect our access to various sources of capital or financing and/or the cost of capital, which could affect our business activities, dividends, earnings and common stock price, among other things; ● Our continuing investors hold shares of our special voting stock that entitle them to vote together with holders of our common stock on an as-exchanged basis, based on their ownership of Class B LLC units in our predecessor entities, and are generally able to significantly influence the composition of our board of directors, our management and the conduct of our business; ● Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of OP Units and of LLC units in our predecessor entities, which may impede business decisions that could benefit our stockholders; ● Our charter contains a provision that expressly permits our officers to compete with us; ● We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs; ● We may not have sufficient cash flow to meet the required payments of principal and interest on our debt or to pay distributions on our common stock at expected levels; ● Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt; ● Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock; ● Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our investments; and ● REIT distribution requirements could adversely affect our liquidity and adversely affect our ability to execute our business plan. ITEM 1. BUSINESS In this Annual Report on Form 10-K, when we use the terms the “Company,” “Clipper Realty,” “we,” “us,” or “our,” unless the context otherwise requires, we are referring to Clipper Realty Inc. and its consolidated subsidiaries. Certain disclosures included in this Annual Report on Form 10-K constitute forward-looking statements that are subject to risks and uncertainties. See Item 1A, "Risk Factors," and “Cautionary Note Concerning Forward-Looking Statements." Overview Clipper Realty Inc. is a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multifamily residential and commercial properties in the New York metropolitan area, with a portfolio in Manhattan and Brooklyn. The Company was formed to continue and expand the commercial real estate business of the 50/53 JV LLC (a Delaware limited liability company), Renaissance Equity Holdings LLC (a Delaware limited liability company), Berkshire Equity LLC (a Delaware limited liability company) and Gunki Holdings LLC (a Delaware limited liability company) (collectively, the “Predecessor” or the “predecessor entities”). Our primary focus is to continue to own, manage and operate our portfolio, and to acquire and re-position additional multifamily residential and commercial properties in the New York metropolitan area. 3 We were incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes, and we elected to be treated as a REIT commencing with the taxable year ended December 31, 2015. On February 9, 2017, the Company priced an initial public offering of 6,390,149 primary shares of its common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) at a price of $13.50 per share (the “IPO”). The net proceeds of the IPO were approximately $78.7 million. We contributed the proceeds of the IPO to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. As of December 31, 2020, the properties owned by the Company consist of the following (collectively, the “Properties”): • • • • Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 483,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA; Flatbush Gardens in Brooklyn, a 59-building residential housing complex with 2,493 rentable units and approximately 1,746,000 square feet of residential rental GLA; 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,000 square feet of GLA; 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 370,000 square feet of GLA (fully remeasured); • Aspen in Manhattan, a 7-story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA; • • • Clover House in Brooklyn, a 11-story residential building with approximately 102,000 square feet of residential rental GLA; 10 West 65th Street in Manhattan, a 6-story residential building with approximately 76,000 square feet of residential rental GLA; and 1010 Pacific Street in Brooklyn, which the Company plans to redevelop as a 9-story residential building with approximately 119,000 square feet of residential rental GLA. See “Descriptions of Our Properties” in Item 2 for a detailed discussion of the Company’s properties. These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation. The Company’s ownership interest in its initial portfolio of properties (Tribeca House, Flatbush Gardens, 141 Livingston Street and 250 Livingston Street) was acquired in the formation transactions in connection with the private offering. These properties are owned by the predecessor entities, which after the formation transactions are referred to as the “LLC subsidiaries.” The LLC subsidiaries are managed by the Company through the Operating Partnership. The Operating Partnership’s interests in the LLC subsidiaries generally entitle the Operating Partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries, other than the preferred distribution to the continuing investors who hold Class B LLC units in these LLC subsidiaries (described below). In connection with the formation transactions, holders of interests in the predecessor entities received Class B LLC units in the Operating Partnership or shares of our common stock. At December 31, 2020, the continuing investors owned an aggregate amount of 26,317,396 Class B LLC units, representing 62.1% of the Company’s common stock on a fully diluted basis. Accordingly, the Operating Partnership’s interests in the LLC subsidiaries entitle it to receive 37.9% of the aggregate distributions from the LLC subsidiaries. 4 The Company’s revenue consists primarily of rents received from our residential, commercial and, to a lesser extent, retail tenants. We derive approximately 74% of our revenues from rents received from residents in our apartment rental properties and the remainder from commercial and retail rental customers. As of December 31, 2020, agencies of the City of New York leased approximately 17% of the total rentable square feet in our portfolio, representing approximately 23% of our total portfolio’s annualized rent. History The Company’s Predecessor is a combination of four limited liability companies - Renaissance Equity Holdings LLC, Berkshire Equity LLC, Gunki Holdings LLC and 50/53 JV LLC - which were formed by principals of our management team from 2002 to 2014. Upon completion of the private offering and the formation transactions, we assumed responsibility for managing the predecessor LLCs. Business and Growth Strategies Our primary business objective is to enhance stockholder value by increasing cash flow from operations and total return to stockholders through the following strategies: ● Increase existing below-market rents – capitalize on the successful repositioning of our portfolio and solid market fundamentals to increase rents at several of our properties. ● Disciplined acquisition strategy – opportunistically acquire additional properties, with a focus on premier submarkets and assets, by utilizing the significant experience of our senior management team. ● Proactive asset and property management – utilize our proactive, service-intensive approach to help increase occupancy and rental rates, and manage operating expenses. ● Reposition assets – execute on our targeted capital program to selectively reposition properties and achieve rent growth in an expedited fashion. Competitive Strengths We believe that the following competitive strengths distinguish us from other owners and operators of multifamily residential and commercial properties: ● Diverse portfolio of properties in the New York metropolitan area, which is characterized by supply constraints, high barriers to entry, near- and long-term prospects for job creation, vacancy absorption and long-term rental rate growth.  ● Expertise in repositioning and managing multifamily residential properties. ● Experienced management team with a proven track record over generations in New York real estate.  ● Balance sheet well-positioned for future growth. ● Strong internal rent growth prospects. Regulation Environmental and Related Matters Under various federal, state and local laws, ordinances and regulations, as a current or former owner and operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances (such as lead, asbestos and polychlorinated biphenyls), waste, petroleum products and other miscellaneous products (including but not limited to natural products such as methane and radon gas) at, on, in, under or from such property, including costs for investigation or remediation, natural resource damages or third-party liability for personal injury or property damage. In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations. As the owner or operator of real property, we may also incur liability based on various building conditions. We are not presently aware of any material liabilities related to building conditions, including any instances of material noncompliance with asbestos requirements or any material liabilities related to asbestos. 5 In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to liability for adverse health effects or property damage, or costs for remediation. We are not presently aware of any material adverse indoor air quality issues at our properties. Americans with Disabilities Act and Similar Laws Our properties must comply with Title III of Americans with Disabilities Act of 1990 (“ADA”) to the extent that such properties are “public accommodations” as defined by the ADA. We have not conducted a recent audit or investigation of all of our properties to determine our compliance with these or other federal, state or local laws. Noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect. Insurance We carry commercial general liability insurance coverage on our properties, with limits of liability customary within the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils of flood and earthquake shock. Our policies also cover the loss of rental revenue during any reconstruction period. Our policies reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies when acquiring new properties, which insure fee title to our real properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. While we do carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties, these policies include limits and terms we consider commercially reasonable. In addition, there are certain losses (including, but not limited to, losses arising from known environmental conditions or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. In addition, for properties we may self-insure certain portions of our insurance program, and therefore, use our own funds to satisfy those limits, when applicable. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of our management, the properties in our portfolio are adequately insured. Competition The leasing of real estate is highly competitive in Manhattan, Brooklyn and the greater New York metropolitan market in which we operate. We compete with numerous acquirers, developers, owners and operators of commercial and residential real estate, many of which own or may seek to acquire or develop properties similar to ours in the same markets in which our properties are located. The principal means of competition are rents charged, location, services provided and the nature and condition of the facility to be leased. In addition, we face competition from numerous developers, real estate companies and other owners and operators of real estate for buildings for acquisition and pursuing buyers for dispositions. We expect competition from other real estate investors, including other REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others, that may have greater financial resources or access to capital than we do or that are willing to acquire properties in transactions which are more highly leveraged or are less attractive from a financial viewpoint than we are willing to pursue. Human Capital Resources As of December 31, 2020, we had 156 employees who provide property management, maintenance, landscaping, construction management and accounting services. Certain of these employees are covered by union-sponsored, collectively bargained, multiemployer defined benefit pension and profit-sharing plans, and health insurance, legal and training plans. Contributions to the plans are determined in accordance with the provisions of the negotiated labor contracts. The Local 94 International Union of Operating Engineers contract is in effect through December 31, 2022. The Local 32BJ Service Employees International Union apartment building contract is in effect through April 20, 2022. The Local 32BJ Service Employees International Union commercial building contract is in effect through December 31, 2023. The Building Maintenance Employees Union, Local 486 contract is in effect through February 28, 2023. 6 Company Information Our principal executive offices are located at 4611 12th Avenue, Brooklyn, New York 11219. Our current facilities are adequate for our present and future operations. Our telephone number is (718) 438-2804. Our website address is www.clipperrealty.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Our electronic filings with the SEC (including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports), including the exhibits, are available free of charge through our website as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. ITEM 1A. RISK FACTORS Set forth below are certain risk factors that could harm our business, results of operations and financial condition. You should carefully read the following risk factors, together with the financial statements, related notes and other information contained in this Annual Report on Form 10-K. Our business, financial condition and operating results may suffer if any of the following risks are realized. If any of these risks or uncertainties occur, the trading price of our common stock could decline and you might lose all or part of your investment. This Annual Report on Form 10-K contains forward-looking statements that contain risks and uncertainties; please refer to the discussion under "Cautionary Note Concerning Forward-Looking Statements." Risks Related to Real Estate The ongoing COVID-19 pandemic, and measures intended to curb its spread, could have a material adverse impact on our business, financial condition, liquidity and results of operations. The COVID-19 pandemic, which was declared a pandemic by the World Health Organization in March 2020, has had an ongoing significant adverse impact on local, national, and global economic activity and has contributed to volatility in global financial markets. The pandemic led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control the spread of the virus, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Beginning in early May 2020, the United States began to lift certain lockdown restrictions and allow for the reopening of businesses; however, state and local governments, including the State and City of New York, have since imposed localized restrictions and there can be no assurance that broader lockdown restrictions will not be re-imposed or that additional new restrictions will not be put in place. The impact of the COVID-19 pandemic and measures enacted by governmental authorities to curb its spread have negatively impacted, and may continue to negatively impact, our business in a number of ways, including affecting our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area; for example, the Tribeca House property has experienced declines in leased occupancy and residential rental rate as a result of the pandemic, and certain of our commercial tenants have requested and received partial rent deferrals during the pandemic. In some cases, we may restructure rent and other obligations under our leases with our tenants on terms that are less favorable to us than those currently in place. In the event of resident nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re- leasing our property. Additionally, local and national authorities may enact, expand or extend certain measures, including moratoriums on or suspensions of eviction proceedings, imposing restrictions on our ability to enforce tenants’ contractual rental obligations. In addition, if governmental restrictions restricting our employees’ and other brokers’ ability to meet with existing and potential residents are re-imposed, such restrictions may disrupt our ability to lease apartments which could adversely impact our rental rate and occupancy levels. 7 The COVID-19 pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you conditions will not continue to deteriorate as a result of the COVID-19 pandemic. Additionally, the United States, state and local governments may reinstitute lockdowns to control the further spread of the virus. In addition, the continued deterioration of global economic conditions as a result of the COVID-19 pandemic may ultimately result in a further decrease in occupancy levels and rental rates across our portfolio as residents and commercial tenants reduce their spending and replacement tenants become harder to find. The full extent of the COVID-19 pandemic’s effect on our business, financial condition, liquidity and results of operations will depend on future developments, including the duration, spread and intensity of the outbreak and the measures intended to curb its spread, all of which are uncertain and difficult to predict. As a result of the rapid development and fluidity with which the situation continues to develop, we are unable to estimate the effect of these factors on our business, but if such events lead to a continued significant or prolonged impact on capital or credit markets or economic growth, then our business, financial condition, liquidity and results of operations could be adversely affected. Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses, and the overall market value of our assets, impair our ability to sell, recapitalize or refinance our assets and have an adverse effect on our results of operations, financial condition, cash flow and our ability to make distributions to our stockholders. Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and/or globally may significantly affect our occupancy levels, rental rates, rent collections, operating expenses, the market value of our assets and our ability to strategically acquire, dispose, recapitalize or refinance our properties on economically favorable terms or at all. Our ability to lease our properties at favorable rates may be adversely affected by increases in supply of commercial, retail and/or residential space in our markets and is dependent upon overall economic conditions, which are adversely affected by, among other things, job losses and increased unemployment levels, recession, stock market volatility and uncertainty about the future. Some of our major expenses, including mortgage payments and real estate taxes, generally do not decline when related rents decline. We expect that any declines in our occupancy levels, rental revenues and/or the values of our buildings would cause us to have less cash available to pay our indebtedness, fund necessary capital expenditures and to make distributions to our stockholders, which could negatively affect our financial condition and the market value of our common stock. Our business may be affected by volatility and illiquidity in the financial and credit markets, a general global economic recession and other market or economic challenges experienced by the real estate industry or the U.S. economy as a whole. Our business may also be adversely affected by local economic conditions, as all of our revenue is currently derived from properties located in New York City, with our entire portfolio located in Manhattan and Brooklyn. Factors that may affect our occupancy levels, our rental revenues, our income from operations, our funds from operations (“FFO”), our adjusted funds from operations (“AFFO”), our adjusted earnings before interest, income tax, depreciation and amortization (“Adjusted EBITDA”), our net operating income (“NOI”), our cash flow and/or the value of our properties include the following, among others: ● downturns in global, national, regional and local economic and demographic conditions; ● the Housing Stability and Tenant Protection Act of 2019, which was signed into law in New York in June 2019, as well as other rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs; ● declines in the financial condition of our tenants, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or other reasons, and declines in the financial condition of buyers and sellers of properties; ● declines in local, state and/or federal government budgets and/or increases in local, state and/or federal government budget deficits, which among other things could have an adverse effect on the financial condition of our only office tenant, the City of New York, and may result in tenant defaults under leases and/or cause such tenant to seek alternative office space arrangements; 8 ● the inability or unwillingness of our tenants to pay rent increases, or our inability to collect rents and other amounts due from our tenants; ● significant job losses in the industries in which our commercial and/or retail tenants operate, and/or from which our residential tenants derive their incomes, which may decrease demand for our commercial, retail and/or residential space, causing market rental rates and property values to be affected negatively; ● an oversupply of, or a reduced demand for, commercial and/or retail space and/or apartment homes; ● declines in household formation; ● unfavorable residential mortgage rates; ● changes in market rental rates in our markets and/or the attractiveness of our properties to tenants, particularly as our buildings continue to age, and our ability to fund repair and maintenance costs; ● competition from other available commercial and/or retail lessors and other available apartments and housing alternatives, and from other real estate investors with significant capital, such as other real estate operating companies, other REITs and institutional investment funds; ● economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly as a result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to state and local governments), utilities, insurance, compensation of on-site personnel and routine maintenance; ● opposition from local community or political groups with respect to the development and/or operations at a property; ● investigation, removal or remediation of hazardous materials or toxic substances at a property; ● changes in, and changes in enforcement of, laws, regulations and governmental policies, including without limitation, health, safety, environmental and zoning laws; and ● changes in rental housing subsidies provided by the government and/or other government programs that favor single-family rental housing or owner-occupied housing over multifamily rental housing. Multifamily residential properties are subject to rent stabilization regulations, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by tenants that their rents exceed such specified maximum amounts. Numerous municipalities, including New York City where our multi-family residential properties are located, impose rent control or rent stabilization on apartment buildings. The rent stabilization regulations applicable to our multifamily residential properties set maximum rates for annual rent increases, entitle our tenants to receive required services from us and entitle our tenants to have their leases renewed. On June 14, 2019, the Housing Stability and Tenant Protection Act of 2019 was signed into law in New York State. The legislation affects rent-stabilized apartments in New York City. Provisions of the law make it extremely difficult for apartments to exit rent regulation, repeal vacancy decontrol and high-income deregulation, repeal vacancy and longevity bonuses, establish a preferential rent as the base rent at lease renewal, and reduce / limit rent increases associated with major capital improvements and individual apartment improvements. The new law took effect immediately, is permanent and reduces the Company’s ability to raise rents on its rent- stabilized units. The legislation generally limits a landlord’s ability to increase rents on rent-regulated apartments and makes it more difficult to convert rent-regulated apartments to market-rate apartments. As a result, the value of our portfolio may be impaired and our stock price may decline. 9 In addition, we are subject to claims from tenants that the rent charged by us exceeds the amount permitted by rent stabilization. Although we believe that all of our rents are compliant with applicable rent stabilization regulation, tenants have in the past made claims that their rents exceed the maximum rent that could be charged under rent stabilization. These claims include claims that the annual increases in the maximum rent have in the past been inapplicable as a result of a failure to provide essential services by us or the prior owners. The number of these claims may increase as our rents approach the maximum rent that could be charged under rent stabilization. Tenants could also claim that our determination that luxury deregulation was applicable to their apartment was incorrect and seek a reduction in rent and/or return of rents paid in excess of the maximum legal rent. Finally, a tenant in an apartment eligible for tax benefits, such as Section 421-g of the Real Property Tax Law, could claim that rent stabilization applies to the tenant’s apartment while those tax benefits are available, even if the apartment is eligible for luxury deregulation. For example, in 2016, certain present and former tenants of apartment units at our Tribeca House properties brought an action against the Company alleging that they were subject to applicable rent stabilization laws. For more information regarding these claims, see “Legal Proceedings.” The application of rent stabilization to apartments in our multifamily residential properties limits the amount of rent we are able to collect, which may have a material adverse effect on our cash flows and our ability to fully take advantage of the investments that we are making in our properties. All of our properties are located in New York City, and adverse economic or regulatory developments in New York City or parts thereof, including the boroughs of Brooklyn and Manhattan, could negatively affect our results of operations, financial condition, cash flow, and ability to make distributions to our stockholders. All of our properties are located in New York City, with all of our current portfolio being in the boroughs of Manhattan and Brooklyn. As a result, our business is dependent on the condition of the economy in New York City and the views of potential tenants regarding living and working in New York City, which may expose us to greater economic risks than if we owned a more geographically diverse portfolio. We are susceptible to adverse developments in New York City, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, terror attacks, increases in real estate and other taxes, increases in costs of complying with governmental regulations and/or increased regulation such as the Housing Stability and Tenant Protection Act of 2019, which was signed into law in New York in June 2019. Such adverse developments could materially reduce the value of our real estate portfolio and our rental revenues, and thus adversely affect our ability to meet our debt obligations and to make distributions to our stockholders. We depend on a single government tenant in our office buildings, which could cause an adverse effect on us, including our results of operations and cash flow, if the City of New York were to suffer financial difficulty. Our rental revenue depends on entering into leases with and collecting rents from tenants. As of December 31, 2020, Kings County Court, the Human Resources Administration, and the Department of Environmental Protection, all of which are agencies of the City of New York, leased an aggregate of 548,580 rentable square feet of commercial space at our commercial office properties at 141 Livingston Street and 250 Livingston Street, representing approximately 17% of the total rentable square feet in our portfolio and approximately 23% of our total portfolio’s annualized rent. General and regional economic conditions may adversely affect the City of New York and potential tenants in our markets. The City of New York may experience a material business downturn or suffer negative effects from declines in local, state and/or federal government budgets and/or increases in local, state and/or federal government budget debt and deficits, which could potentially result in a failure to make timely rental payments and/or a default under its leases. In certain cases, through tenant improvement allowances and other concessions, we have made substantial upfront investments in the applicable leases that we may not be able to recover. In the event of a tenant default, we may experience delays in enforcing our rights and may also incur substantial costs to protect our investments. The bankruptcy or insolvency of a major tenant may adversely affect the income produced by our properties and may delay our efforts to collect past due balances under the relevant leases and could ultimately preclude collection of these sums altogether. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages that is limited in amount and which may only be paid to the extent that funds are available and in the same percentage as is paid to all other holders of unsecured claims. If any of our significant tenants were to become bankrupt or insolvent, suffer a downturn in their business or a reduction in funds available to them, default under their leases, fail to renew their leases or renew on terms less favorable to us than their current terms, our results of operations and cash flow could be adversely affected. 10 Our portfolio’s revenue is currently generated from seven properties. As of December 31, 2020, our portfolio consisted of eight properties – the Tribeca House properties, the Flatbush Gardens complex, the 141 Livingston Street property, the 250 Livingston Street property, the Aspen property, the 10 West 65th Street property, the Clover House property and the 1010 Pacific Street property, which accounted for 28.5%, 35.3%, 11.9%, 10.6%, 5.8%, 2.5%, 5.4% and 0.0%, respectively, of our portfolio’s total revenue for the year ended December 31, 2020. Our results of operations and cash available for distribution to our stockholders would be adversely affected if any of these properties were materially damaged or destroyed. We may be unable to renew leases or lease currently vacant space or vacating space on favorable terms or at all as leases expire or terminate, which could adversely affect our financial condition, results of operations and cash flow. As of December 31, 2020, we had approximately 173,000 rentable square feet of vacant residential space (excluding leases signed but not yet commenced) at our operating properties, and leases representing approximately 61% of the square footage of residential space at the operating properties will expire during the year ending December 31, 2021 (including month-to-month leases). As of December 31, 2020, we had no vacant commercial space, and approximately 17,000 rentable square feet of vacant retail space. We cannot assure you that expiring leases will be renewed or tenants will not exercise any early termination options or that our properties will be re-leased at net effective rental rates equal to or above the current average net effective rental rates. If the rental rates for our commercial and/or residential space decrease, our existing commercial tenants do not renew their leases or exercise early termination options or we do not re-lease a significant portion of our available and soon-to-be-available commercial and/or residential space, our financial condition, results of operations, cash flow, the market value of our common stock and our ability to satisfy our debt obligations and to make distributions to our stockholders would be adversely affected. The actual rents we receive for the properties in our portfolio may be less than market rents, and we may experience a decline in realized rental rates, which could adversely affect our financial condition, results of operations and cash flow. Short-term leases with respect to our residential tenants expose us to the effects of declining market rents. As a result of potential factors, including competitive pricing pressure in our markets, a general economic downturn and the desirability of our properties compared to other properties in our markets, we may be unable to realize market rents across the properties in our portfolio. In addition, depending on market rental rates at any given time as compared to expiring or terminating leases in our portfolio, from time to time rental rates for expiring or terminating leases may be higher than starting rental rates for new leases. A majority of our apartment leases are for a term of one year. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues for residential space in our properties are affected by declines in market rents more quickly than if those leases were for longer terms. If we are unable to obtain sufficient rental rates across our portfolio, then our ability to generate cash flow growth will be negatively affected. We may engage in development, redevelopment or repositioning activities, which could expose us to different risks that could adversely affect us, including our financial condition, cash flow and results of operations. We may engage in development, redevelopment or repositioning activities with respect to our properties as we believe market conditions dictate. For example, we plan to redevelop the 1010 Pacific Street property as a fully amenitized residential rental building. We are also reviewing the regulatory, architectural and financial considerations regarding a residential square footage expansion at Flatbush Gardens; such further development would require significant capital investment. If we engage in these activities, we will be subject to certain risks, which could adversely affect us, including our financial condition, cash flow and results of operations. These risks include, without limitation: ● the availability and pricing of financing on favorable terms or at all; ● the availability and timely receipt of zoning and other regulatory approvals; ● the potential for the fluctuation of occupancy rates and rents at development and redeveloped properties, which may result in our investment not being profitable; 11 ● startup, development, repositioning and redevelopment costs may be higher than anticipated; ● cost overruns and untimely completion of construction (including risks beyond our control, such as weather or labor conditions or material shortages); and ● changes in the pricing and availability of buyers and sellers of such properties. These risks could result in substantial unanticipated delays or expenses and could prevent the initiation or the completion of development and redevelopment activities, any of which could have an adverse effect on our financial condition, results of operations, cash flow, the market value of our common stock and our ability to satisfy our debt obligations and to make distributions to our stockholders. We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, generate positive cash flows or to make real estate properties suitable for sale, which could adversely affect us, including our financial condition, results of operations and cash flow. In the event that there are adverse economic conditions in the real estate market and demand for commercial, retail and/or residential space decreases with respect to our current vacant space and as leases at our properties expire or terminate, we may be required to increase tenant improvement allowances or concessions to tenants, accommodate increased requests for renovations, build-to-suit remodeling (with respect to our commercial and retail space) and other improvements or provide additional services to our tenants, all of which could negatively affect our cash flow. If the necessary capital is unavailable, we may be unable to make these potentially significant capital expenditures. This could result in non-renewals by tenants upon expiration or early termination of their leases and our vacant space remaining untenanted, which could adversely affect our financial condition, results of operations, cash flow and the market value of our common stock. Our dependence on rental revenue may adversely affect us, including our profitability, our ability to meet our debt obligations and our ability to make distributions to our stockholders Our income is derived from rental revenue from real property. As a result, our performance depends on our ability to collect rent from tenants. Our income and funds for distribution would be adversely affected if a significant number of our tenants, or any of our major tenants: ● delay lease commencements; ● decline to extend or renew leases upon expiration or exercise rights of early termination; ● fail to make rental payments when due; or ● declare bankruptcy. Any of these actions could result in the termination of such tenants’ leases with us and the loss of rental revenue attributable to the terminated leases. In these events, we cannot assure you that such tenants will renew those leases or not exercise early termination options or that we will be able to re-lease spaces on economically advantageous terms or at all. For example, the City of New York has advised us that it may vacate the 250 Livingston Street property in 2025. The loss of rental revenues from our tenants and our inability to replace such tenants may adversely affect us, including our profitability, our ability to meet our debt and other financial obligations and our ability to make distributions to our stockholders. Real estate investments are relatively illiquid and may limit our flexibility. Equity real estate investments are relatively illiquid, which may tend to limit our ability to react promptly to changes in economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions. Our inability to sell our properties on favorable terms or at all could have an adverse effect on our sources of working capital and our ability to satisfy our debt obligations. In addition, real estate can at times be difficult to sell quickly at prices we find acceptable. The Internal Revenue Code, as amended (the “Code”), also imposes restrictions on REITs, which are not applicable to other types of real estate companies, regarding the disposal of properties. These potential difficulties in selling real estate in our markets may limit our ability to change, or reduce our exposure to, the properties in our portfolio promptly in response to changes in economic or other conditions. 12 Competition could limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities, which may adversely affect us, including our profitability, and impede our growth. We compete with numerous commercial developers, real estate companies and other owners and operators of real estate for properties for acquisition and pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private equity funds, sovereign wealth funds, pension funds, other REITs and other well- capitalized investors, will compete with us to acquire existing properties and to develop new properties. Our markets are each generally characterized by high barriers-to-entry to construction and limited land on which to build new commercial, retail and residential space, which contribute to the competition we face to acquire existing properties and to develop new properties in these markets. This competition could increase prices for properties of the type we may pursue and adversely affect our profitability and impede our growth. Competition may impede our ability to attract or retain tenants or re-lease space, which could adversely affect our results of operations and cash flow. The leasing of real estate in our markets is highly competitive. The principal means of competition are rents charged, location, services provided and the nature and condition of the premises to be leased. The number of competitive properties in our markets, which may be newer or better located than our properties, could have an adverse effect on our ability to lease space at our properties and on the effective rents that we are able to charge. If other lessors and developers of similar spaces in our markets offer leases at prices comparable to or less than the prices we offer, we may be unable to attract or retain tenants or re-lease space in our properties, which could adversely affect our results of operations and cash flow. We are subject to potential losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage. Our properties are located in areas that could be subject to, among other things, flood and windstorm losses. Insurance coverage for flood and windstorms can be costly because of limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. In addition, our properties may be subject to a heightened risk of terrorist attacks. We carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties with limits and on terms we consider commercially reasonable. We cannot assure you, however, that our insurance coverage will be sufficient or that any uninsured loss or liability will not have an adverse effect on our business and our financial condition and results of operations. We are subject to risks from natural disasters such as severe weather. Natural disasters and severe weather such as hurricanes or floods may result in significant damage to our properties. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. With our geographic concentration of exposures, a single catastrophe or destructive weather event (such as a hurricane) affecting New York City may have a significant negative effect on our financial condition, results of operations and cash flows. As a result, our operating and financial results may vary significantly from one period to the next. Our financial results may be adversely affected by our exposure to losses arising from natural disasters or severe weather. We also are exposed to risks associated with inclement winter weather, including increased need for maintenance and repair of our buildings. Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties. All of our properties are located in New York City, which has been and may in the future be the target of actual or threatened terrorist attacks. As a result, some tenants in these markets may choose to relocate their businesses or homes to other markets or buildings within New York City that may be perceived to be less likely to be affected by future terrorist activity. This could result in an overall decrease in the demand for commercial, retail and/or residential space in these markets generally or in our properties in particular, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms, or both. In addition, future terrorist attacks in these markets could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially. 13 We may become subject to liability relating to environmental and health and safety matters, which could have an adverse effect on us, including our financial condition and results of operations. Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances (such as lead, asbestos and polychlorinated biphenyls), waste, petroleum products and other miscellaneous products (including but not limited to natural products such as methane and radon gas) at, on, in, under or from such property, including costs for investigation or remediation, natural resource damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several. Some of our properties may be affected by contamination arising from current or prior uses of the property or from adjacent properties used for commercial, industrial or other purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials. We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with environmental laws in doing so. The presence of contamination or the failure to remediate contamination on our properties may adversely affect our ability to attract and/or retain tenants and our ability to develop or sell or borrow against those properties. In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property. In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations. Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability. These liabilities could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise adversely affect our operations and/or cash flow, or those of our tenants, which could in turn have an adverse effect on us. As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material (“ACM”). Environmental and health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment. In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues. Indoor air quality issues also can stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs. 14 We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our stockholders or that such costs, liabilities, or other remedial measures will not have an adverse effect on our financial condition, results of operations and cash flows. We may incur significant costs complying with the ADA and similar laws (including but not limited to the Fair Housing Amendments Act of 1988 (“FHAA”) and the Rehabilitation Act of 1973), which could adversely affect us, including our future results of operations and cash flows. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. The FHAA requires apartment communities first occupied after March 13, 1991, to comply with design and construction requirements for disabled access. For projects receiving federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. We have not conducted a recent audit or investigation of all of our properties to determine our compliance with these or other federal, state or local laws. If one or more of our properties were not in compliance with such laws, then we could be required to incur additional costs to bring the property into compliance. We cannot predict the ultimate amount of the cost of compliance with such laws. Noncompliance with these laws could also result in the imposition of fines or an award of damages to private litigants. Substantial costs incurred to comply with such laws, as well as fines or damages resulting from actual or alleged noncompliance with such laws, could adversely affect us, including our future results of operations and cash flows. As we increase rents and improve our properties, we could become the target of public scrutiny and investigations similar to the public scrutiny and investigations that other apartment landlords in Brooklyn and other neighborhoods in the New York metropolitan area have experienced, which could lead to negative publicity and require that we expend significant resources to defend ourselves, all of which could adversely affect our operating results and our ability to pay distributions to our stockholders. Other apartment landlords in gentrifying neighborhoods in Brooklyn and other parts of the New York metropolitan area have come under public scrutiny, and in a few cases have been the subject of civil and criminal investigations, for their alleged treatment of tenants who cannot afford the rent increases that often result from neighborhood gentrification and landlord improvements to properties. It is possible that we or members of our management team could come under similar public scrutiny or become the target of similar investigations regardless of whether we have done anything wrong, which could lead to negative publicity and require that we expend significant resources to defend ourselves, all of which could adversely affect our operating results and our ability to pay distributions to our stockholders. We may acquire properties or portfolios of properties through tax-deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets. In the future we may acquire properties or portfolios of properties through tax-deferred contribution transactions in exchange for partnership interests in our operating partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions. From time to time, we may enter into joint venture relationships or other arrangements regarding the joint ownership of property. Our investments in and through such arrangements could be adversely affected by our lack of sole decision-making authority regarding major decisions, our reliance on our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners. Risks associated with joint venture arrangements may include but are not limited to the following: ● our joint venture partners might experience financial distress, become bankrupt or fail to fund their share of required capital contributions, which may delay construction or development of a property or increase our financial commitment to the joint venture; 15 ● we may be responsible to our partners for indemnifiable losses; ● our joint venture partners may have business interests or goals with respect to a property that conflict with our business interests and goals (including as relates to compliance with the REIT requirements), which could increase the likelihood of disputes regarding the ownership, management or disposition of the property; ● we may be unable to take actions that are opposed by our joint venture partners under arrangements that require us to share decision-making authority over major decisions affecting the ownership or operation of the joint venture and any property owned by the joint venture, such as the sale or financing of the property or the making of additional capital contributions for the benefit of the property; ● our joint venture partners may take actions that we oppose; ● our ability to sell or transfer our interest in a joint venture to a third party without prior consent of our joint venture partners may be restricted; ● we may disagree with our joint venture partners about decisions affecting a property or a joint venture, which could result in litigation or arbitration that increases our expenses, distracts our officers and directors and disrupts the day-to-day operations of the property, including by delaying important decisions until the dispute is resolved; ● we may suffer losses as a result of actions taken by our joint venture partners with respect to our joint venture investments; and ● in the event that we obtain a minority position in a joint venture, we may not have significant influence or control over such joint venture or the performance of our investment therein. If there is a transfer of a controlling interest in any of our properties (or in the entities through which we hold our properties), issuances of our common stock in exchange for Class B LLC units pursuant to the exchange right granted to holders of Class B LLC units, sales of Class B LLC units by the holders thereof or the issuance of LLC interests to our Operating Partnership, we may be obligated to pay New York City and New York State transfer tax based on the fair market value of the New York City and/or New York State real property transferred. Subject to certain exceptions, New York City and New York State impose a tax on the transfer of New York City and/or New York State real property or the transfer of a controlling interest in New York City and/or New York State real property, generally at a current, maximum combined rate of 3.275% of the fair market value of the New York City and/or New York State real property. A direct or indirect transfer of a 50% or greater interest in any of our properties (or in the entities that own our properties) generally would constitute a transfer of a controlling interest in real property. Certain aggregation rules apply in determining whether a transfer of a controlling interest has occurred. For example, transfers made within a three-year period generally are presumed to be aggregated. Therefore, a transfer of a controlling interest could occur as a result of the combination of one or more of the private offering, the IPO, other offerings of common stock by us resulting of an increase in our investment in the entities that own our properties, issuances of our common stock to our continuing investors in exchange for Class B LLC units pursuant to the exchange right granted to holders of Class B LLC units, sales of Class B LLC units by the holders thereof, the issuance of LLC interests to our Operating Partnership in connection with the private offering or a subsequent offering of our stock, or as a result of any combination of such transfers being aggregated. In addition to any transfer tax that may be imposed upon us, we have agreed with our continuing investors to pay any such transfer taxes imposed upon a continuing investor as a result of the private offering and the related formation transactions (including subsequent issuances of additional LLC units or interests, issuances of units by the Operating Partnership (“OP Units”) or issuances of our common stock by the Company), issuances of our common stock in exchange for Class B LLC units, dispositions of property by any LLC subsidiary, the issuance of LLC interests to our Operating Partnership in connection with a subsequent offering of our stock, or as a result of any combination of such transfers being aggregated. If a transfer of a controlling interest in an entity owning our properties occurs, New York City and/or New York State transfer tax could be payable based on the fair market value of the New York City and/or New York State property at the time of each such transfer (including any transfers that are treated as a part of the transfer of the controlling interest that occur prior to the transfer that caused the 50% threshold to be met). For example, if exchanges of Class B LLC units resulted in our ownership of the entities that own our properties increasing to greater than 50%, we could be subject to New York City and New York State transfer tax at a current, maximum combined rate of 3.275% of the fair market value of such New York City and/or New York State properties. In addition, we may or may not be eligible to take advantage of the 50% reduction to the New York City and New York State transfer tax rates that could apply with respect to transfers of real property to certain REITs. 16 Risks Related to Our Business and Operations Capital and credit market conditions may adversely affect our access to various sources of capital or financing and/or the cost of capital, which could affect our business activities, dividends, earnings and common stock price, among other things. In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to us may be adversely affected. We primarily use third-party financing to fund acquisitions of properties and to refinance indebtedness as it matures. As of December 31, 2020, we had no corporate debt and $1,089.7 million in property-level debt. See Note 7 of the accompanying “Notes to Consolidated Financial Statements” for a discussion of the Company’s property-level debt. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our acquisition, development and redevelopment activities and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. To the extent that we are able and/or choose to access capital at a higher cost than we have experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing), our earnings per share and cash flow could be adversely affected. In addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate or volatile economic environment. If economic conditions deteriorate, the ability of lenders to fulfill their obligations under working capital or other credit facilities that we may have in the future may be adversely affected. We may from time to time be subject to litigation that could have an adverse effect on our financial condition, results of operations, cash flow and the market value of our common stock. We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse effect on our financial position and results of operations. Adverse developments in existing litigation claims or legal proceedings involving us or new claims could require us to establish litigation reserves, enter into unfavorable settlements or satisfy judgments for monetary damages for amounts in excess of current reserves, which could adversely affect our financial results. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely affect our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely affect our ability to attract officers and directors. We recently identified a material weakness in our internal control over financial reporting related to the method for accounting for straight-line revenue in connection with multi-year leases with termination options. If we do not effectively remediate the material weakness or if we otherwise fail to maintain effective disclosure controls and procedures or internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may adversely affect the market price of our common stock. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As described under “Item 9A – Controls and Procedures,” we identified a control deficiency constituting a material weakness in our internal control over financial reporting related to an error identified in connection with the accounting for straight-line rent associated with the reassessment of a lease term. As a result of the material weakness identified in Item 9A, our management concluded that we did not maintain effective disclosure controls and procedures and internal control over financial reporting as of December 31, 2020. Management is in the process of implementing remediation procedures to address the control deficiency that led to the material weakness. The remediation plan includes, but is not limited to, the implementation of additional review procedures regarding the accounting for straight-line rent associated with the reassessment of the lease term. There can be no assurances that the remediation plan will be effective in addressing this control deficiency or preventing other control deficiencies in the future. Subsequent testing by us or our independent registered public accounting firm, which has not yet performed an audit of our internal control over financial reporting, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or significant deficiencies. 17 In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") reveals or we otherwise identify one or more material weaknesses or significant deficiencies, the correction of any such material weakness or significant deficiency could require additional remedial measures including additional personnel which could be costly and time-consuming. If a material weakness exists as of a future period year-end (including a material weakness identified prior to year-end for which there is an insufficient period of time to evaluate and confirm the effectiveness of the corrections or related new procedures), our management will be unable to report favorably as of such future period year-end to the effectiveness of our control over financial reporting and we could be required again to restate our financial results. If we are unable to assert that our internal control over financial reporting is effective in any future period, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the trading price of our common stock and potentially subject us to additional and potentially costly litigation and governmental inquiries/investigations. Our subsidiaries may be prohibited from making distributions and other payments to us. All of our properties are owned indirectly by subsidiaries, in particular our LLC subsidiaries, and substantially all of our operations are conducted by our Operating Partnership. As a result, we depend on distributions and other payments from our Operating Partnership and subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of our subsidiaries to make such distributions and other payments depends on their earnings and cash flow and may be subject to statutory or contractual limitations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Property-Level Debt.” As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in, or other lien on, their assets and to any of such subsidiaries’ debt or other obligations that are senior to our claims. Risks Related to Our Organization and Structure Our continuing investors hold shares of our special voting stock that entitle them to vote together with holders of our common stock on an as-exchanged basis, based on their ownership of Class B LLC units in our predecessor entities, and are generally able to significantly influence the composition of our board of directors, our management and the conduct of our business. Our continuing investors hold shares of our special voting stock, which generally allows them to vote together as a single class with holders of our common stock on all matters brought before our common stockholders, including the election of directors, on an as-exchanged basis, as if our continuing investors had exchanged their Class B LLC units in our predecessor entities and shares of our special voting stock for shares of our common stock. As a result, our continuing investors are generally entitled to exercise 69.9% of the voting power in our Company. Even though none of our continuing investors is, by himself or together with his affiliates, entitled to exercise a majority of the total voting power in our Company, for so long as any continuing investor continues to be entitled to exercise a significant percentage of our voting power, our continuing investors are generally able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval, and have significant influence with respect to our management, business plans and policies, including appointing and removing our officers, issuing additional shares of our common stock and other equity securities, paying dividends, incurring additional debt, making acquisitions, selling properties or other assets, acquiring or merging with other companies and undertaking other extraordinary transactions. In any of these matters, any of our continuing investors may have interests that differ or conflict with the interests of our other stockholders, and they may exercise their voting power in a manner that is not consistent with the interests of other stockholders. For so long as our continuing investors continue to own shares of our stock entitling them to exercise a significant percentage of our voting power, the concentration of voting power in our continuing investors may discourage unsolicited acquisition proposals and may delay, defer or prevent any change of control of our Company that might involve a premium price for holders of our common stock or otherwise be in their best interest. 18 The ability of stockholders to control our policies and effect a change of control of our Company is limited by certain provisions of our charter and bylaws and by Maryland law. Certain provisions in our charter and bylaws may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following: ● Our continuing investors hold shares of our special voting stock and shares of our common stock that generally entitle them to exercise 69.9% of the voting power in our Company, including in connection with a merger or other acquisition of our Company or a change in the composition of our board of directors. As a result, our continuing investors as a group or individually could delay, defer or prevent any change of control of our Company and, as a result, adversely affect our stockholders’ ability to realize a premium for their shares of common stock. ● Our charter authorizes our board of directors to, without common stockholder approval, amend our charter to increase or decrease the aggregate number of our authorized shares of stock or the authorized number of shares of any class or series of our stock, authorize us to issue additional shares of our common stock or preferred stock and classify or reclassify unissued shares of our common stock or preferred stock and thereafter authorize us to issue such classified or reclassified shares of stock. We believe these charter provisions provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise. The additional classes or series, as well as the additional authorized shares of our common stock, will be available for issuance without further action by our common stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Although our board of directors does not currently intend to do so, it could authorize us to issue a class or series of stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of our Company that might involve a premium price for holders of our common stock or that our common stockholders otherwise believe to be in their best interests. ● In order to qualify as a REIT, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals (as defined in the Code to include certain entities such as private foundations) at any time during the last half of any taxable year (beginning with our second taxable year as a REIT). In order to help us qualify as a REIT, among other reasons, our charter generally prohibits any person or entity from owning or being deemed to own by virtue of the applicable constructive ownership provisions, more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. We refer to these restrictions as the “ownership limit.” The ownership limit may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of our common stock. ● The provisions in our charter regarding the removal of directors and the advance notice provisions of our bylaws, among others, could delay, defer or prevent a transaction or a change of control of our Company that might involve a premium price for holders of our common stock or otherwise be in their best interest. 19 In addition, certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then- prevailing market price of such shares, including the Maryland business combination and control share provisions. These provisions include the following: ● The “business combination” provisions of the MGCL, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of our then-outstanding voting shares or 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 our then-outstanding voting shares) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, imposes special appraisal rights and supermajority stockholder approval requirements on these combinations. As permitted by the MGCL, our board of directors has adopted a resolution exempting any business combinations between us and any other person or entity from the business combination provisions of the MGCL, if such business combination is approved by our board of directors, including a majority of our directors who are not affiliated or associated with the interested stockholder. ● The “control share” provisions of the MGCL provide that “control shares” of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (or the direct or indirect acquisition of ownership or control of control shares) have no voting rights unless approved by a supermajority vote of our stockholders excluding the acquirer of control shares, our officers and our directors who are also our employees. As permitted by the MGCL, our bylaws contain a provision exempting from the control share acquisition provisions of the MGCL any and all acquisitions by any person of shares of our stock. ● Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board. Each item discussed above may have the effect of deterring a third party from making an acquisition proposal for us or may delay, deter or prevent a change in control of our Company, even if a proposed transaction is at a premium over the then-current market price for our common stock. Further, these provisions may apply in instances where some stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions. Our board of directors may change our policies without stockholder approval. Our policies, including any policies with respect to investments, leverage, financing, growth, debt and capitalization, will be determined by our board of directors or those committees or officers to whom our board of directors may delegate such authority. Our board of directors will also establish the amount of any dividends or other distributions that we may pay to our stockholders. Our board of directors or the committees or officers to which such decisions are delegated have the ability to amend or revise these and our other policies at any time without stockholder approval. For example, we have established a policy for our target leverage ratio in a range of 45% to 55%. Under the policy, our leverage ratio may be greater than or less than the target range from time to time and our board of directors may amend our target leverage ratio range at any time without stockholder approval. Accordingly, while not intending to do so, we may adopt policies that may have an adverse effect on our financial condition, results of operations, ability to pay dividends or make other distributions to our stockholders and the market value of our common stock. 20 Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of OP Units and of LLC units in our predecessor entities, which may impede business decisions that could benefit our stockholders. Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our Operating Partnership or any of its partners or our predecessor entities and their members, on the other. Our directors and officers have duties to our Company under Maryland law in connection with their management of our Company. At the same time, we, as the general partner of our Operating Partnership, and our Operating Partnership, as managing member of our predecessor entities, have fiduciary duties and obligations to our Operating Partnership and its limited partners and our predecessor entities and their members under Delaware and New York law, the partnership agreement of our Operating Partnership in connection with the management of our Operating Partnership, and the limited liability company agreements of our predecessor entities in connection with the management of those entities. Our fiduciary duties and obligations as the general partner of our Operating Partnership and managing member of our predecessor entities may come into conflict with the duties of our directors and officers to our Company. We have adopted policies that are designed to eliminate or minimize certain potential conflicts of interest, and the members of our predecessor entities have agreed that, in the event of a conflict in the duties owed by us to our stockholders and the fiduciary duties owed by our Operating Partnership, in its capacity as managing member of our predecessor entities, to such members, we may give priority to the separate interests of our Company or our stockholders, including with respect to tax consequences to limited partners, LLC members, assignees or our stockholders. Nevertheless, the duties and obligations of the general partner of our Operating Partnership and the duties and obligations of the managing member of our predecessor entities may come into conflict with the duties of our directors and officers to our Company and our stockholders. Our charter contains a provision that expressly permits our officers to compete with us. Our officers have outside business interests and may compete with us for investments in properties and for tenants. There is no assurance that any conflicts of interest created by such competition will be resolved in our favor. Our charter provides that we renounce any interest or expectancy in, or right to be offered or to participate in, any business opportunity identified in any investment policy or agreement with any of our officers unless the policy or agreement contemplates that the officer must present, communicate or offer such business opportunity to us. We have adopted an Investment Policy that provides that our officers, including David Bistricer, JJ Bistricer and Jacob Schwimmer, are not required to present certain identified investment opportunities to us, including assets located outside the New York metropolitan area, for-sale condominium or cooperative conversions, development projects, projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisitions. As a result, except to the extent that our officers must present certain identified business opportunities to us, our officers have no duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our subsidiaries engage or propose to engage or to refrain from otherwise competing with us. These individuals also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. These provisions may limit our ability to pursue business or investment opportunities that we might otherwise have had the opportunity to pursue, which could have an adverse effect on our financial condition, our results of operations, our cash flow, the market value of our common stock and our ability to meet our debt obligations and to make distributions to our stockholders. We may have assumed unknown liabilities in connection with the formation transactions, which, if significant, could adversely affect our business. As part of the formation transactions, we acquired indirect interests in the properties and assets of our predecessor entities, subject to existing liabilities, some of which may have been unknown at the time the private offering was consummated. As part of the formation transactions, each of the predecessor entities made limited representations, warranties and covenants to us regarding the predecessor entities and their assets. Because many liabilities, including tax liabilities, may not have been identified, we may have no recourse for such liabilities. Any unknown or unquantifiable liabilities to which the properties and assets previously owned by our predecessor entities are subject could adversely affect the value of those properties and as a result adversely affect us. See “Risks Related to Real Estate” for discussion as to the possibility of undisclosed environmental conditions potentially affecting the value of the properties in our portfolio. We may pursue less vigorous enforcement of terms of employment agreements with certain of our executive officers, which could negatively impact our stockholders. Certain of our executive officers, including David Bistricer, JJ Bistricer and Jacob Schwimmer, are party to employment agreements with us. We may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationships with members of our senior management or our board of directors and their affiliates, with possible negative impact on stockholders. Moreover, these agreements were not negotiated at arm’s length and in the course of structuring the formation transactions, certain of our executive officers had the ability to influence the types and level of benefits that they receive from us under these agreements. 21 David Bistricer, our Co-Chairman and Chief Executive Officer, and Sam Levinson, our Co-Chairman and Head of the Investment Committee, have outside business interests that will take their time and attention away from us, which could materially and adversely affect us. In addition, notwithstanding the Investment Policy, members of our senior management may in certain circumstances engage in activities that compete with our activities or in which their business interests and ours may be in conflict. Our Co-Chairman and Chief Executive Officer, David Bistricer, our Co-Chairman and Head of the Investment Committee, Sam Levinson, and other members of our senior management team continue to own interests in properties and businesses that were not contributed to us in the formation transactions. For instance, each of David Bistricer, our Co-Chairman and Chief Executive Officer, and JJ Bistricer, our Chief Operating Officer, is an officer of Clipper Equity and each of Sam Levinson, our Co-Chairman and Head of the Investment Committee, and Jacob Schwimmer, our Chief Property Management Officer, has ownership interests in Clipper Equity. Clipper Equity owns interests in, and controls and manages entities that own interests in, multifamily and commercial properties in the New York metropolitan area. We have adopted an Investment Policy that provides that our officers, including David Bistricer, JJ Bistricer and Jacob Schwimmer, are not required to present certain identified investment opportunities to us, including assets located outside the New York metropolitan area, for-sale condominium or cooperative conversions, development projects, projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisitions. As a result, except to the extent that our officers must present certain identified business opportunities to us, our officers have no duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our subsidiaries engage or propose to engage or to refrain from otherwise competing with us, and therefore may compete with us for investments in properties and for tenants. These individuals also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. We and members of our senior management may also determine to enter into joint ventures or co-investment relationships with respect to one or more properties. As a result of the foregoing, there may at times be a conflict between the interests of members of our senior management and our business interests. Further, although David Bistricer, JJ Bistricer and Jacob Schwimmer will devote such portion of their business time and attention to our business as is appropriate and will be compensated on that basis, under their employment agreements, they will also devote substantial time to other business and investment activities. We may experience conflicts of interest with certain of our directors and officers and significant stockholders as a result of their tax positions. We have entered into a tax protection agreement with our continuing investors pursuant to which we have agreed to indemnify the continuing investors against certain tax liabilities incurred during the 8-year period following the private offering (or with respect to item (iv) below, certain tax liabilities resulting from certain transfers occurring during the 8-year period following the private offering) if those tax liabilities result from (i) the sale, transfer, conveyance or other taxable disposition of any of the properties of our LLC subsidiaries, (ii) any of Renaissance, Berkshire or Gunki LLC failing to maintain a level of indebtedness allocable for U.S. federal income tax purposes to any of the continuing investors such that any of the continuing investors is allocated less than a specified minimum indebtedness in each such LLC subsidiary (in order to comply with this requirement, (1) Renaissance needs to maintain approximately $101.3 million of indebtedness, (2) Berkshire needs to maintain approximately $125.8 million of indebtedness and (3) Gunki needs to maintain approximately $34.4 million of indebtedness), (iii) in a case that such level of indebtedness cannot be maintained, failing to make available to such a continuing investor the opportunity to execute a guarantee of indebtedness of the LLC subsidiary meeting certain requirements that would enable the continuing investor to continue to defer certain tax liabilities, or (iv) the imposition of New York City or New York State real estate transfer tax liability upon a continuing investor as a result of the formation transactions, private offering, the IPO and/or certain subsequent transactions (including subsequent issuances of additional LLC units or interests, issuances of OP Units by the Operating Partnership, issuances of common stock by Clipper Realty, issuances of common stock in exchange for Class B LLC units or dispositions of property by any LLC subsidiary), or as a result of any of those transfers being aggregated. We estimate that had all of their assets subject to the tax protection agreement been sold in a taxable transaction immediately after the private offering, the amount of our LLC subsidiaries’ indemnification obligations (based on then-current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $364.9 million. In addition, we estimate that if New York City or New York State real estate transfer taxes had been imposed on our continuing investors, the maximum amount of our LLC subsidiaries’ indemnification obligations pursuant to the tax protection agreement in respect of New York City or New York State real estate transfer tax liability (based on then-current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $74.9 million (although the amount may be significantly less). We do not presently intend to sell or take any other action that would result in a tax protection payment with respect to the properties covered by the tax protection agreement. 22 In addition, David Bistricer and Sam Levinson may be subject to tax on a disproportionately large amount of the built-in gain that would be realized upon the sale or refinancing of certain properties. David Bistricer and Sam Levinson may therefore influence us to not sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest, as they may wish to avoid realization of their share of the built-in gains in those properties. Alternatively, to avoid realizing such built-in gains, they may have to agree to additional reimbursements or guarantees involving additional financial risk. Risks Related to Our Indebtedness and Financing We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs. As of December 31, 2020, we had $1,089.7 million of total indebtedness, all of which was property-level debt. See Note 7 of the accompanying “Notes to Consolidated Financial Statements” for a discussion of the Company’s property-level debt. Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and redevelopment activities, or meet the REIT distribution requirements imposed by the Code. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following: ● require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes; ● make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs; ● force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100% tax on income from prohibited transactions) or in violation of certain covenants to which we may be subject; ● subject us to increased sensitivity to interest rate increases; ● make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events; ● limit our ability to withstand competitive pressures; ● limit our ability to refinance our indebtedness at maturity or result in refinancing terms that are less favorable than the terms of our original indebtedness; ● reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or 23 ● place us at a competitive disadvantage to competitors that have relatively less debt than we have. If any one of these events were to occur, our financial condition, results of operations, cash flow and the market value of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hurt our ability to meet the REIT distribution requirements imposed by the Code. Our tax protection agreement requires our Operating Partnership to maintain certain debt levels that otherwise would not be required to operate our business. Under our tax protection agreement, we undertake that our LLC subsidiaries will maintain a certain level of indebtedness and, in the case that level of indebtedness cannot be maintained, we are required to provide our continuing investors the opportunity to guarantee debt. If we fail to maintain such debt levels, or fail to make such opportunities available, we will be required to deliver to each applicable continuing investor a cash payment intended to approximate the continuing investor’s tax liability resulting from our failure and the tax liabilities incurred as a result of such tax protection payment. We agreed to these provisions in order to assist our continuing investors in deferring the recognition of taxable gain as a result of and after the formation transactions. These obligations require us to maintain more or different indebtedness than we would otherwise require for our business. We may not have sufficient cash flow to meet the required payments of principal and interest on our debt or to pay distributions on our common stock at expected levels. In the future, our cash flow could be insufficient to meet required payments of principal and interest or to pay distributions on our shares at expected levels. In this regard, we note that in order for us to qualify as a REIT, we are required to make annual distributions generally equal to at least 90% of our taxable income, computed without regard to the dividends paid deduction and excluding net capital gain. In addition, as a REIT, we will be subject to U.S. federal income tax to the extent that we distribute less than 100% of our taxable income (including capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified by the Code. These requirements and considerations may limit the amount of our cash flow available to meet required principal and interest payments. If we are unable to make required payments on indebtedness that is secured by a mortgage on our property, the asset may be transferred to the lender resulting in the loss of income and value to us, including adverse tax consequences related to such a transfer. Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt. Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by property may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties. For tax purposes, a foreclosure of any of our properties that is subject to a nonrecourse mortgage loan would 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 debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hurt our ability to meet the distribution requirements applicable to REITs under the Code. We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of alternative reference rates. Our indebtedness secured by 1010 Pacific Street bears interest at variable interest rates that use LIBOR as a benchmark rate. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or requiring banks to submit LIBOR quotations after 2021 (the “FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis cannot and will not be assured after 2021, and LIBOR may cease to exist or otherwise be unsuitable for use as a benchmark. A change or transition away from LIBOR as a common reference rate in the global financial market could have a material, adverse effect on our business. Recent proposals for LIBOR reforms may result in the establishment of new methods of calculating LIBOR or the establishment of one or more alternative benchmark rates. If LIBOR ceases to exist, we cannot predict what such successor rate would be utilized and the impact of such rate on the Company and the Company may determine to negotiate an amendment to its loans with its lenders. As a result, our interest expense may increase, and our ability to refinance some or all of our existing indebtedness and our available cash flow may be adversely affected. 24 Hedging activity may expose us to risks, including the risks that a counterparty will not perform and that the hedge will not yield the economic benefits we anticipate, which could adversely affect us. We may, in a manner consistent with our qualification as a REIT, seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, 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. Moreover, there can be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations. Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligations under the hedging agreement. Generally, failure to hedge effectively against interest rate changes may adversely affect our results of operations. When a hedging agreement is required under the terms of a mortgage loan, it is often a condition that the hedge counterparty maintains a specified credit rating. With the current volatility in the financial markets, there is an increased risk that hedge counterparties could have their credit rating downgraded to a level that would not be acceptable under the loan provisions. If we were unable to renegotiate the credit rating condition with the lender or find an alternative counterparty with an acceptable credit rating, we could be in default under the loan and the lender could seize that property through foreclosure, which could adversely affect us. Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. The REIT provisions of the Code limit our ability to hedge our liabilities. Generally, income from a hedging transaction we enter into either to manage risk of interest rate changes with respect to borrowings incurred or to be incurred to acquire or carry real estate assets, or to manage the risk of currency fluctuations with respect to any item of income or gain (or any property which generates such income or gain) that constitutes “qualifying income” for purposes of the 75% or 95% gross income tests applicable to REITs, does not constitute “gross income” for purposes of the 75% or 95% gross income tests, provided that we properly identify the hedging transaction pursuant to the applicable sections of the Code and Treasury regulations. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of otherwise advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary (a “TRS”). The use of a TRS could increase the cost of our hedging activities (because our TRS would be subject to tax on income or gain resulting from hedges entered into by it) or expose us to greater risks than we would otherwise want to bear. In addition, net losses in any of our TRSs will generally not provide any tax benefit except for being carried forward for use against future taxable income in the TRSs. A portion of our distributions may be treated as a return of capital for U.S. federal income tax purposes, which could reduce the basis of a stockholder’s investment in shares of our common stock and may trigger taxable gain. A portion of our distributions may be treated as a return of capital for U.S. federal income tax purposes. As a general matter, a portion of our distributions will be treated as a return of capital for U.S. federal income tax purposes if the aggregate amount of our distributions for a year exceeds our current and accumulated earnings and profits for that year. To the extent that a distribution is treated as a return of capital for U.S. federal income tax purposes, it will reduce a holder’s adjusted tax basis in the holder’s shares, and to the extent that it exceeds the holder’s adjusted tax basis, will be treated as gain resulting from a sale or exchange of such shares. 25 Risks Related to Our Status as a REIT Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock. We elected to qualify to be treated as a REIT commencing with our first taxable year ended December 31, 2015. The Code generally requires that a REIT distribute at least 90% of its taxable income (without regard to the dividends paid deduction and excluding net capital gains) to stockholders annually, and a REIT must pay tax at regular corporate rates to the extent that the REIT distributes less than 100% of its taxable income (including capital gains) in a given year. In addition, a REIT is required to pay a 4% nondeductible excise tax on the amount, if any, by which the distributions the REIT makes in a calendar year are less than the sum of 85% of the REIT’s ordinary income, 95% of the REIT’s capital gain net income and 100% of the REIT’s undistributed income from prior years. To avoid entity-level U.S. federal income and excise taxes, we anticipate distributing at least 100% of our taxable income. We believe that we are organized, have operated and will continue to operate in a manner that will allow us to qualify as a REIT commencing with our first taxable year ended December 31, 2015. However, we cannot assure you that we are organized, have operated and will continue to operate as such. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code as to which there may only be limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. We have not requested and do not intend to request a ruling from the Internal Revenue Service (“IRS”) that we qualify as a REIT. Moreover, in order to qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and our income, the ownership of our outstanding stock and the amount of our distributions. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT gross income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our gross income and assets on an ongoing basis. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for U.S. federal income tax purposes or the U.S. federal income tax consequences of such qualification. Accordingly, it is possible that we may not meet the requirements for qualification as a REIT. If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to stockholders in computing our taxable income. If we were not entitled to relief under the relevant statutory provisions, we would also be disqualified from treatment as a REIT for the four subsequent taxable years. If we fail to qualify as a REIT, we would no longer be required to make distributions and we would be subject to entity-level income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate tax rates. As a result, the amount available for distribution to holders of our common stock would be reduced for the year or years involved. In addition, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and adversely affect the value of our common stock. If our special voting stock and the Class B LLC units are treated as a single stock interest in the Company, we could fail to qualify as a REIT. We believe that the special voting stock and Class B LLC units will be treated as separate interests in the Company and its predecessor entities, respectively. However, no assurance can be given that the IRS will not argue, or that a court would not find or hold, that the special voting stock and the Class B LLC units should be treated as a single stock interest in the Company for U.S. federal income tax purposes. If the special voting stock and Class B LLC units were treated as a single stock interest in the Company, it is possible that more than 50% in value of the outstanding stock of the Company could be treated as held by five or fewer individuals. In such a case, we could be treated as “closely held” and we could therefore fail to qualify as a REIT. Such failure would have significant adverse consequences. See “Risks Related to Our Status as a REIT – Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock.” 26 The Tax Act resulted in significant changes to the Code. On December 22, 2017, the President of the United States signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), with most provisions having an initial effective date of January 1, 2018. The Tax Act made major changes to the Code, including changes that impact REITs and their shareholders, among others. In particular, the Act reduced the maximum corporate tax rate from 35% to 21%. By reducing the corporate tax rate, it is possible that the Act will reduce the relative attractiveness to investors (as compared with potential alternative investments) of the generally single level of taxation on REIT distributions. However, the Act also made certain changes to the Code which are generally advantageous to REITs and their shareholders. For instance, for tax years beginning before January 1, 2026, the Act permits up to a 20% deduction for individuals, trusts, and estates with respect to their receipt of “qualified REIT dividends”, which are dividends from a REIT that are not capital gain dividends and are not qualified dividend income. These changes generally result in an effective maximum U.S. federal income tax rate on such dividends of 29.6%, if the deduction is allowed in full. Another change made by the Tax Act that could affect us and our stockholders limits the deduction for net business interest expense in excess of 30% of a business’s adjusted taxable income except for taxpayers that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system for certain property). As of December 31, 2020, the Tax Act did not have a material impact on our REIT or subsidiary entities, the size and character of our dividends, our ability to continue to qualify as a REIT or our results of operations. Technical corrections or other amendments to the Tax Act or administrative guidance interpreting the Tax Act may be forthcoming at any time. Prospective and current shareholders should consult with their tax advisors with respect to the effect of the Tax Act and any other regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our investments. To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may, for instance, hinder our ability to make certain otherwise attractive investments or undertake other activities that might otherwise be beneficial to us and our stockholders, or may require us to borrow or liquidate investments in unfavorable market conditions and, therefore, may hinder our investment performance. As a REIT, at the end of each calendar quarter, at least 75% of the value 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 cash, cash items, government securities, securities issued by a TRS and securities treated as qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets can consist of the securities (other than cash, cash items, government securities, securities issued by a TRS and qualified real estate assets) of any one issuer, no more than 20% of the value of our total assets can be represented by securities of one or more TRSs (25% for taxable years ending on or before December 31, 2017), and no more than 25% of the value of our total assets may consist of “nonqualified” debt instruments issued by publicly offered REITs. After meeting these requirements at the close of a calendar quarter, if we fail to comply with these requirements at the end of any subsequent calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. We may be subject to a 100% penalty tax on any prohibited transactions that we enter into, or may be required to forego certain otherwise beneficial opportunities in order to avoid the penalty tax on prohibited transactions. If we are found to have held, acquired or developed property primarily for sale to customers in the ordinary course of business, we may be subject to a 100% “prohibited transactions” tax under U.S. federal tax laws on the gain from disposition of the property unless the disposition qualifies for one or more safe harbor exceptions for properties that have been held by us for at least two years and satisfy certain additional requirements (or the disposition is made by a TRS and, therefore, the gain, if any, is subject to corporate U.S. federal income tax). 27 Under existing law, whether property is held primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances. We intend to hold, and, to the extent within our control, to have any joint venture to which our Operating Partnership is a partner hold, properties for investment with a view to long-term appreciation, to engage in the business of acquiring, owning, operating and developing the properties, and to make sales of our properties and other properties acquired subsequent to the date hereof as are consistent with our investment objectives. Based upon our investment objectives, we believe that overall, our properties should not be considered property held primarily for sale to customers in the ordinary course of business. However, it may not always be practical for us to comply with one of the safe harbors, and, therefore, we may be subject to the 100% penalty tax on the gain from dispositions of property if we otherwise are deemed to have held the property primarily for sale to customers in the ordinary course of business. The potential application of the prohibited transactions tax could cause us to forego potential dispositions of other property or to forego other opportunities that might otherwise be attractive to us, or to hold investments or undertake such dispositions or other opportunities through a TRS, which would generally result in corporate income taxes being incurred. For example, we anticipate that we would have to effect any potential condominium or cooperative conversion and sale of our Tribeca House properties or 141 Livingston Street property through a TRS. REIT distribution requirements could adversely affect our liquidity and adversely affect our ability to execute our business plan. In order to maintain our qualification as a REIT and to meet the REIT distribution requirements, we may need to modify our business plans. Our cash flow from operations may be insufficient to fund required distributions, for example, as a result of differences in timing between our cash flow, the receipt of income for GAAP purposes and the recognition of income for U.S. federal income tax purposes, the effect of non-deductible capital expenditures, the creation of reserves, payment of required debt service or amortization payments, or the need to make additional investments in qualifying real estate assets. The insufficiency of our cash flow to cover our distribution requirements could require us to (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions or capital expenditures or used for the repayment of debt, (iv) pay dividends in the form of “taxable stock dividends” or (v) use cash reserves, in order to comply with the REIT distribution requirements. If we choose to make all or part of a distribution in our own stock, shareholders may be required to pay income taxes with respect to such distributions in excess of the cash portion, if any, of the distribution received. Further, taking the actions enumerated above to comply with the REIT distribution requirements could adversely affect the market value of our common stock. The inability of our cash flow to cover our distribution requirements could have an adverse impact on our ability to raise short- and long-term debt or sell equity securities. In addition, if we are compelled to liquidate our assets to repay obligations to our lenders or make distributions to our stockholders, we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as property held primarily for sale to customers in the ordinary course of business. The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders. Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on our total return to our stockholders. Our ability to provide certain services to our tenants may be limited by the REIT rules, or may have to be provided through a TRS. As a REIT, we generally cannot provide services to our tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services. If we forego providing such services to our tenants, we may be at a disadvantage to competitors who are not subject to the same restrictions. However, we can provide such non-customary services to tenants or share in the revenue from such services if we do so through a TRS, though income earned by the TRS will be subject to corporate income taxes. 28 Although our use of TRSs may partially mitigate the impact of meeting certain requirements necessary to maintain our qualification as a REIT, there are limits on our ability to own TRSs, and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax. A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of securities of one or more TRSs (25% for taxable years ended on or before December 31, 2017). In addition, rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are treated as not being conducted on an arm’s-length basis. Any TRSs that we form will pay U.S. federal, state and local income tax on the TRSs’ taxable income, and the TRSs’ after-tax net income will be available for distribution to us but is not required to be distributed to us unless necessary to maintain our REIT qualification. Although we will monitor the aggregate value of the securities of such TRSs and intend to conduct our affairs so that such securities will represent less than 20% of the value of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions. Our property taxes could increase due to property tax rate changes or reassessment, which could impact our cash flow. Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. Therefore, the amount of property taxes we pay in the future may increase substantially from what we have paid in the past and such increases may not be covered by tenants pursuant to our lease agreements. If the property taxes we pay increase, our financial condition, results of operations, cash flow, per share trading price of our common stock and our ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected. Risks Related to Ownership of Our Common Stock The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our common stock. Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include: ● actual or anticipated variations in our quarterly or annual operating results; ● increases in market interest rates that lead purchasers of our shares to demand a higher yield; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● additions or departures of key personnel; ● actions by stockholders; ● speculation in the press or investment community; ● general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets; 29 ● our operating performance and the performance of other similar companies; ● negative publicity regarding us specifically or our business lines generally; ● changes in accounting principles; and ● passage of legislation or other regulatory developments that adversely affect us or our industry, such as the Housing Stability and Tenant Protection Act of 2019, which was signed into law in New York in June 2019. Broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. There are restrictions on ownership and transfer of our common stock. To assist us in qualifying as a REIT, among other purposes, our charter generally limits beneficial ownership by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. In addition, our charter contains various other restrictions on the ownership and transfer of shares of our stock. As a result, an investor that purchases shares of our common stock may not be able to readily resell such common stock. Future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution. Our board of directors is authorized, without approval of our common stockholders, to cause us to issue additional shares of our stock or to raise capital through the issuance of preferred stock, options, warrants and other rights on terms and for consideration as our board of directors in its sole discretion may determine. Sales of substantial amounts of our common stock could dilute current ownership and could cause the market price of our common stock to decrease significantly. We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect the market price of our common stock. In addition, our Operating Partnership may issue additional OP Units and our LLC subsidiaries may issue additional LLC units to third parties without the consent of our stockholders, which would reduce our ownership percentage in our Operating Partnership or LLC subsidiaries, as applicable, and would have a dilutive effect on the amount of distributions made to us by our Operating Partnership and, if applicable, to our Operating Partnership by our LLC subsidiaries and, therefore, the amount of distributions we can make to our stockholders. Any such issuances, or the perception of such issuances, could materially and adversely affect the market price of our common stock. 30 CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS Various statements contained in this Annual Report on Form 10-K, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this Annual Report on Form 10-K speak only as of the date of this Report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed under “Risk Factors,” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following: ● the effect of the ongoing novel strain of coronavirus (“COVID-19”) pandemic, and measures intended to curb its spread, including its effect on our tenants’ ability or willingness to pay rents and on demand for housing in the New York metropolitan area; ● the severe economic, market and other disruptions worldwide caused, and likely to continue to be caused, by the COVID-19 pandemic; ● market and economic conditions affecting occupancy levels (including continued declines at one of our properties), rental rates, the overall market value of our properties, our access to capital and the cost of capital and our ability to refinance indebtedness; ● economic or regulatory developments in New York City; ● the single government tenant in our commercial buildings may suffer financial difficulty; ● changes in rent stabilization regulations or claims by tenants in rent-stabilized units that their rents exceed specified maximum amounts under current regulations; ● our ability to control operating costs to the degree anticipated; ● the risk of damage to our properties, including from severe weather, natural disasters, climate change, and terrorist attacks; ● risks related to financing, cost overruns, and fluctuations in occupancy rates and rents resulting from development or redevelopment activities and the risk that we may not be able to pursue or complete development or redevelopment activities or that such development or redevelopment activities may not be profitable; ● concessions or significant capital expenditures that may be required to attract and retain tenants; ● the relative illiquidity of real estate investments; ● competition affecting our ability to engage in investment and development opportunities or attract or retain tenants; ● unknown or contingent liabilities in properties acquired in formative and future transactions; ● the possible effects of departure of key personnel in our management team on our investment opportunities and relationships with lenders and prospective business partners; ● conflicts of interest faced by members of management relating to the acquisition of assets and the development of properties, which may not be resolved in our favor; ● a transfer of a controlling interest in any of our properties that may obligate us to pay transfer tax based on the fair market value of the real property transferred; ● the impact of the restatement of our financial statements and management’s recently identified material weakness in our internal control over financial reporting; ● the need to establish litigation reserves, costs to defend litigation and unfavorable litigation settlements or judgments; and ● other risks and risk factors or uncertainties identified from time to time in our filings with the SEC. 31 ITEM 2. PROPERTIES Our Portfolio Summary As of December 31, 2020, our portfolio consisted of eight properties totaling approximately 3.3 million rentable square feet (plus an approximate 119,000 rentable square feet under development) and was approximately 95% leased (excluding square footage under development). These properties include Tribeca House (two nearly adjacent residential properties with street-level and mezzanine-level retail space and an externally managed parking garage), the Flatbush Gardens complex (a 59-building residential complex), two properties in Downtown Brooklyn (one exclusively commercial, one mixed commercial and residential), the Aspen property (a residential building with street-level retail space and an externally managed parking garage), the 10 West 65th Street residential property, the Clover House residential property and the 1010 Pacific Street property (currently under development). The table below presents an overview of the Company’s portfolio as of December 31, 2020: Address Multifamily 50 Murray Street 53 Park Place Flatbush Gardens complex 250 Livingston Street Aspen 10 West 65th Street Clover House Commercial 141 Livingston Street 250 Livingston Street Retail 50 Murray Street (retail) 50 Murray Street (parking) 53 Park Place (retail) 141 Livingston Street (parking/other) 250 Livingston Street (retail) 250 Livingston Street (parking) Aspen (retail) Aspen (parking) Submarket Year Built Leasable Sq. Ft. # Units Percent Leased Annualized December 2020 Base Rental Revenue (millions)(1) Net Effective Rent Per Occupied Square Foot Manhattan Manhattan Brooklyn Brooklyn Manhattan Manhattan Brooklyn Brooklyn Brooklyn Manhattan Manhattan Manhattan Brooklyn Brooklyn Brooklyn Manhattan Manhattan 1964 1921 1950 1920 2004 1939 1959 1959 1920 396,528 86,288 1,746,477 26,819 165,542 75,678 102,131 2,599,463 206,084 342,496 548,580 44,583 24,200 8,600 14,853 990 — 21,060 — 114,286 390 116 2,493 36 232 82 158 3,507 1 1 2 8 1 1 1 1 — 4 — 16 89.3% $ 91.4% $ 94.7% $ 94.4% $ 94.4% $ 98.8% $ 98.7% $ 94.0%(2) $ 100.0% $ 100.0% $ 100.0%(2) $ 85.5% $ 100.0% $ — 100.0% $ 100.0% $ $ 92.4% $ — — 85.4%(2) $ 21.4 $ 5.0 $ 41.9 $ 1.2 $ 5.4 $ 3.3 $ 4.8 $ 83.0 $ 10.3 $ 14.9 $ 25.2 $ 1.8 $ 1.2 $ — 0.4 $ 0.1 $ 0.2 0.8 $ — 4.5 $ 63.91 65.46 25.14 47.72 34.64 44.80 49.36 34.16(2) 50.00 43.62 46.02(2) 46.16 50.67 — 26.22 120.95 — 39.44 — 46.22(2) Total Real Estate Under Development 1010 Pacific Street Brooklyn 3,262,329 3,525 94.7% (2) $ 112.7 $ 35.11(2) 118,994(3) 175(3) (1) (2) (3) Represents annualized revenue based on December 2020 data. Represents weighted average. Land purchase made on November 8, 2019; square footage and number of units based on management’s development estimates. 32 The table below presents an overview of commercial and retail lease expirations for the next ten years and thereafter, beginning in 2021. Year 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Thereafter Total Descriptions of Our Properties Tribeca House Number of Tenants Total Square Feet Annualized Rental Revenue % of Annualized Rental Revenue Expiring — 1 3 — 3 — 3 1 — 1 2 14 — — $ 35,039 — 550,275 — 42,068 — — 990 11,198 639,570 $ — 51,500 1,915,205 — 25,304,190 — 1,615,814 55,200 — 89,431 303,283 29,334,623 — 0.2% 6.5% — 86.3% — 5.5% 0.2% — 0.3% 1.0% 100.0% The Company purchased the 50 Murray Street and 53 Park Place buildings on December 15, 2014. These buildings were built in 1964 and 1921, respectively, renovated in 2001, and comprise a total of 506 units which include studio and one- and two-bedroom apartments as well as retail space and parking. The buildings are both full-service luxury rentals which include building finishes such as ceilings as high as 11 feet, stainless steel appliances and granite countertops, and amenities such as a doorman, elevators, landscaped roof deck, rooftop basketball court, tenant lounge, game room, toddlers’ play room, in-house valet service and screening room. 50 Murray Street includes 390 units and 396,528 square feet and 53 Park Place includes 116 units and 86,288 square feet. The properties also feature approximately 77,400 square feet of retail space, comprising approximately 53,000 square feet of street-level and mezzanine-level retail space, and an externally-managed garage. Tenants include Equinox (a premium fitness club), Starbucks and Apple Bank. The weighted average remaining lease duration of the retail tenants at December 31, 2020, is approximately five years (this does not include a twenty-year lease with 7-Eleven for which rent payments will begin in 2022). Property highlights include: Location Building Type Number of Units Amenities Nearby Rapid Transit Access • • • • • • • • • • • • • • • 50 Murray Street and 53 Park Place Residential Retail 506 Doorman Elevators Landscaped roof deck Rooftop basketball court Tenant lounge Game room Toddler’s play room In-house valet service Screening room MTA Subway A, C, E, N, R, 1, 2, 3 trains PATH train The Tribeca House properties are encumbered by a loan through Deutsche Bank AG with a balance of $360.0 million as of December 31, 2020. The loan matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. We have the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027. 33 Flatbush Gardens Flatbush Gardens is a 59-building complex located along Foster Avenue between Nostrand and Brooklyn Avenues in the East Flatbush neighborhood of Brooklyn. The property’s buildings are located on seven tax parcels. The complex was constructed around 1950 and contains 2,493 studio, one-bedroom, two-bedroom, and three-bedroom apartments, and four below-grade garages. The aggregate site area is 898,940 square feet, the aggregate gross building area is 1,926,180 square feet and the aggregate gross leasable area is 1,746,477 square feet. Address 3101 Foster Avenue 1405 Brooklyn Avenue 1402 Brooklyn Avenue 1368 New York Avenue 3505 Foster Avenue 3202-24 Foster Avenue 1401 New York Avenue Total Block Lot Site Area (Sq. Ft.) Net Leasable Area (Sq. Ft.) No. of Units 4964 5000 4981 4964 4967 4995 4981 47 200 50 40 40 30 1 60,000 47,500 161,655 195,865 182,300 112,875 138,745 898,940 120,276 90,762 293,898 354,756 355,476 239,316 291,993 1,746,477 168 144 420 504 504 336 417 2,493 Community District 17 is a mixed-income community. We believe Flatbush Gardens represents an entry-level, low-cost option in the market and that we will increasingly draw tenants who have been priced out of other New York City sub-markets. The neighborhood surrounding the Flatbush Gardens complex is residential on all sides. The Newkirk Avenue subway station, which is serviced by the No. 2 and No. 5 trains, is located on the west side of the complex. Brooklyn College is located 0.6 miles along Nostrand Avenue to the south of Flatbush Gardens. The No. 2 and No. 5 trains, which service both Flatbush Gardens and Brooklyn College, provide direct access to the west side and east side, respectively, of Manhattan, as well as other points in Brooklyn. Two large regional medical centers are located within a mile of the complex. Property highlights include: Building Type Number of Units Amenities Nearby Rapid Transit Access • • • • • Residential 2,493 Park-like space between buildings Parking lots MTA Subway 2, 5 trains Flatbush Gardens is encumbered by a mortgage note to New York Community Bank with a balance of $329.0 million as of December 31, 2020. The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. We have the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined. 141 Livingston Street The 141 Livingston Street property is a 15-story office building with 206,084 commercial square feet, located on a 0.26-acre site in Downtown Brooklyn. The property’s main commercial tenant, the City of New York, executed a 10-year lease in December 2015; under the agreement, the annual rent increased by 25%, or $2.1 million, beginning at the end of December 2020. The property is located approximately 500 feet from the Jay Street-Metrotech, Hoyt-Schermerhorn, Hoyt Street, and Borough Hall subway stops, offering direct one-stop access to the east and west sides of Manhattan, as well as access to surrounding regions of Brooklyn and Queens, and connections to every other New York City subway line. The property is located near the Fulton Street Mall, a pedestrian mall that runs along Fulton Street between Boerum Place and Flatbush Avenue, and is within walking distance of Barclays Center and Atlantic Avenue. In addition, the property includes an adjacent lot at 22 Smith Street, currently used as a parking lot measuring approximately 5,000 square feet. 34 Property highlights include: Location Building Type Tenant Amenities Nearby Rapid Transit Access • • • • • • • 141 Livingston Street Commercial Retail (parking) City of New York Elevators Parking MTA Subway A, C, F, G, R, 2, 3, 4, 5 trains The 141 Livingston Street property is encumbered by a mortgage note to New York Community Bank with a balance of $74.2 million as of December 31, 2020. The note matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of approximately $374,000 thereafter based on a 30-year amortization schedule. We may prepay the debt in whole or in part, subject to a prepayment premium. On February 18, 2021, we refinanced this loan; see Note 7 of the accompanying “Notes to Consolidated Financial Statements” for a discussion of the refinancing. 250 Livingston Street The 250 Livingston Street property is a 12-story mixed-use building, with office and residential uses on the upper floors and office and retail at grade. The total land area of the site is 29,707 square feet. The building currently contains 342,496 square feet of office space which is 100% leased to the City of New York’s Department of Environmental Protection and Human Resources Administration under a ten-year lease that expires in August 2030; however, the City holds one-time termination options at the end of the fifth year and the seventh year. The City of New York has advised us that it may vacate the 250 Livingston Street property in 2025. Additionally, the property includes 36 multifamily residential apartment units (26,819 square feet), which were developed by Clipper Equity from 2003 through 2013. Property highlights include: Location Building Type Commercial Tenant Amenities Nearby Rapid Transit Access • • • • • • • 250 Livingston Street Commercial Residential Retail City of New York Elevators MTA Subway A, B, C, F, G, Q, R, 2, 3, 4, 5 trains The 250 Livingston Street property is encumbered by a mortgage note to Citi Real Estate Funding Inc. with a balance of $125.0 million as of December 31, 2020. The note matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. We have the option to prepay all (but not less than all) of the unpaid balance of the loan within three months of maturity, without a prepayment premium. Aspen In June 2016, the Company purchased the Aspen property located at 1955 1st Avenue in Manhattan for $103 million. The property fronts the west side of First Avenue on the full block between 100th and 101st Streets, and comprises 186,602 square feet, 232 residential rental units, four retail units and a parking garage. The residential units are subject to regulations established by the HDC under which there are no rental restrictions on approximately 55% of the units and low- and middle-income restrictions on approximately 45% of the units. The residential units feature stainless steel appliances including a range, oven, refrigerator, microwave, and dishwasher. Property amenities include a courtyard, game room, fitness center, clubhouse, laundry facilities and onsite below-grade garage parking. 35 Property highlights include: Location Building Type Number of Units Amenities Nearby Rapid Transit Access • • • • • • 1955 1st Avenue Residential Retail 232 Courtyard, game room, fitness center MTA Subway Q, 4, 5, 6 trains The Aspen property is encumbered by a mortgage note to Capital One Multifamily Finance LLC with a balance of $65.5 million as of December 31, 2020. The note matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of approximately $321,000 thereafter based on a 30-year amortization schedule. We have the option to prepay the loan prior to the maturity date, subject to a prepayment premium. Clover House In May 2017, the Company purchased the Clover House property in the historic Brooklyn Heights district in Brooklyn for $87.5 million, in vacant condition. The property is located near the Clark Street subway stop, the Brooklyn-Queens Expressway, the Brooklyn Bridge, the Manhattan Bridge and multiple bus lines. The Company completed renovations in 2019 to create 158 well-appointed studio, one- and two-bedroom units across 102,131 square feet, with amenities and indoor parking for 68 cars. Amenities include various unit terraces, a rooftop terrace, a fitness center and a landscaped courtyard. Property highlights include: Location Building Type Number of Units Amenities Nearby Rapid Transit Access • • • • • 107 Columbia Heights Residential 158 Courtyard, rooftop terrace, fitness center MTA Subway 2, 3, A, C, F trains The Clover House property is encumbered by a mortgage note to MetLife Investment Management with a balance of $82.0 million as of December 31, 2020. The note matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. We have the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029. 10 West 65th Street In October 2017, the Company purchased the 10 West 65th Street property in the Upper West Side neighborhood of Manhattan for $79 million. The property, located less than a block from Central Park, consists of approximately 76,000 square feet of leasable residential area, with 82 apartment units, plus an additional 53,000 square feet of air rights. The property is located near Lincoln Center and several prominent museums. Touro College, which had leased 40 apartment units in accordance with an agreement entered into when the Company purchased the property, exercised its option to terminate the leases, effective January 31, 2019. The Company subsequently repositioned the apartments and leased them at market rates. Property highlights include: Location Building Type Number of Units Amenities Nearby Rapid Transit Access • • • • • 10 West 65th Street Residential 82 Elevator MTA Subway A, B, C, D, 1, 2, 3 trains The 10 West 65th Street property is encumbered by a mortgage note to New York Community Bank, entered into in connection with the acquisition of the property, with a balance of $33.6 million as of December 31, 2020. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through November 2019, and monthly principal and interest payments of approximately $152,000 thereafter based on a 30-year amortization schedule. We have the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined. 36 1010 Pacific Street In November 2019, the Company purchased the 1010 Pacific Street property in the Prospect Heights neighborhood of Brooklyn for $31 million. The Company intends to redevelop the property as a fully amenitized residential building with approximately 119,000 square feet of leasable area; the building is expected to have 175 total units, 70% of which will be leased at market rates and 30% of which will be designated as affordable housing. The construction process is estimated to take approximately two years. The 1010 Pacific Street property is encumbered by a mortgage note to CIT Bank, N.A., entered into in connection with the acquisition of the property, with a balance of $18.6 million as of December 31, 2020. The property is also encumbered by a pre-development bridge loan with the same lender that will provide up to $3.0 million for 100% of eligible pre- development and carrying costs, of which approximately $1.8 million was drawn as of December 31, 2020. The notes mature on June 24, 2021, require interest-only payments and bear interest at one-month LIBOR (with a floor of 1.25%) plus 3.60% (4.85% as of December 31, 2020). The Company has guaranteed this mortgage note and has complied with the financial covenants therein. The Company currently intends to refinance the notes with a construction loan prior to maturity, although there are no assurances that the Company will be able to do so. ITEM 3. LEGAL PROCEEDINGS See Note 10, “Commitments and Contingencies” of our consolidated financial statements included in Item 15 for a discussion of legal proceedings. ITEM 4. MINE SAFETY DISCLOSURE Not applicable. ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Market Information Our common stock is traded on the NYSE under the ticker symbol “CLPR”. The stock began trading on February 10, 2017. 37 Stock Performance Graph The following graph sets forth the cumulative total stockholder return (assuming reinvestment of dividends) to our stockholders during the period from February 10, 2017 (the date our common stock began trading on the NYSE) through December 31, 2020, as well as the corresponding returns on an overall stock market index (S&P SmallCap 600) and a peer group index (MSCI US REIT Index). Historical total stockholder return is not necessarily indicative of future results. Holders As of February 19, 2021, there were 2,257 holders of record of our common stock. Dividends There is no guarantee that we will make quarterly cash distributions to holders of our common stock. We may make distributions only when, as and if authorized by our board of directors from funds legally available for distribution. Our cash distribution policy may be changed at any time and is subject to certain restrictions, including the following: ● ● ● we may lack sufficient cash to pay distributions on shares of our common stock for a number of reasons, including as a result of increases in our operating or general and administrative expenses, principal and interest payments on our debt, working capital requirements or cash needs; our ability to make cash distributions to holders of our common stock depends on the performance of our subsidiaries and their ability to distribute cash to us, and on the performance of our properties and tenants; and the ability of our subsidiaries to make distributions to us may be restricted by, among other things, covenants in the instruments governing current or future debt of these subsidiaries. U.S. federal income tax law requires that we distribute annually at least 90% of our taxable income (without regard to the dividends paid deduction and excluding net capital gains). As a result, we expect to generally distribute a significant percentage of our available cash to holders of our common stock. Therefore, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. We expect that we will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. To the extent we issue additional shares of common stock, our operating partnership issues OP Units or our existing or new LLC subsidiaries issue LLC units in connection with any acquisitions or other transactions, the payment of distributions on those additional securities may increase the risk that we will be unable to maintain or increase our distributions to stockholders. 38 Any future distributions we make will be at the discretion of our board of directors and will depend on a number of factors, including prohibitions or restrictions under financing agreements, our charter, applicable law and other factors described below. We cannot assure you that our board of directors will not change our distribution policy in the future. Any distributions we pay in the future will depend upon our actual results of operations, liquidity, cash flows, financial condition, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our actual results of operations, liquidity, cash flows and financial condition will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our ability to pay dividends and make other distributions to our stockholders, see “Risk Factors.” Unregistered Sales of Equity Securities None. Issuer Purchases of Equity Securities Period Common stock October 1, 2020 – October 31, 2020 November 1, 2020 – November 30, 2020 December 1, 2020 – December 31, 2020 Total common stock Total Number of Shares Purchased (1) Average Price Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value of Shares that May Still Be Purchased Under the Program (in thousands) — $ 1,705,586 — 1,705,586 $ — 5.70 — 5.70 — $ 1,705,586 — 1,705,586 9,729 — — (1) Share repurchases were made pursuant to a stock repurchase program announced on August 10, 2020, under which the Company could repurchase up to $10 million of its common stock; the program did not have an expiration date. In November 2020, the Company repurchased approximately 1.67 million shares of common stock from Indaba Capital Management, L.P., pursuant to a privately negotiated transaction; the remaining share repurchases during November 2020 were made pursuant to open market purchases under Rule 10b-18. The Company completed the stock repurchase program in November 2020. 39 ITEM 6. SELECTED FINANCIAL DATA The following tables show selected consolidated financial data for the Company for the periods indicated. You should read the selected financial data in conjunction with the more detailed information contained in the audited financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. Consolidated Statement of Operations Revenues Residential rental income Commercial rental income Total revenues Operating Expenses Property operating expenses Real estate taxes and insurance General and administrative Acquisition and organization costs Depreciation and amortization Total operating expenses Gain on termination of lease Income from operations Interest expense, net Loss on modification/extinguishment of debt Gain on involuntary conversion Net loss Net loss attributable to non-controlling interests Dividends attributable to preferred shares Net loss attributable to common stockholders Basic and diluted net loss per share Cash dividends per share Weighted average common shares / OP units: Common shares outstanding OP units outstanding Diluted shares outstanding Cash Flow Data Operating activities Investing activities Financing activities Non-GAAP Financial Measures(1) FFO AFFO Adjusted EBITDA Net Operating Income (NOI) 2020 (in thousands, except per share data) Year ended December 31, 2018 2019 2017 2016 $ $ $ $ $ $ $ 90,543 $ 32,307 122,850 29,902 28,286 9,728 — 23,630 91,546 838 32,142 (40,228) (4,228) 85 (12,229) $ 7,323 — (4,906) $ (0.31) $ 0.38 $ 17,629 26,317 43,946 15,990 $ (31,714) 47,824 11,401 $ 16,844 56,374 63,573 87,386 $ 28,779 116,165 28,887 24,966 9,167 — 19,649 82,669 — 33,496 (35,187) (2,432) — (4,123) $ 2,458 — (1,665) $ (0.11) $ 0.38 $ 17,814 26,317 44,131 23,772 $ (74,903) 62,199 15,526 $ 22,041 56,134 62,825 81,117 $ 28,880 109,997 27,267 22,293 9,873 101 18,005 77,539 — 32,458 (32,781) (8,872) 194 (9,001) $ 5,368 — (3,633) $ (0.22) $ 0.38 $ 17,813 26,317 44,130 22,362 $ (39,295) 41,127 9,004 $ 19,818 52,091 60,024 74,859 $ 29,093 103,952 27,029 20,685 9,944 69 16,721 74,448 — 29,504 (35,505) — — (6,001) $ 3,644 (8) (2,365) $ (0.15) $ 0.37 $ 17,021 26,317 43,338 13,065 $ (187,656) 147,609 10,720 $ 16,682 49,554 56,388 68,414 24,591 93,005 25,442 17,740 8,405 326 15,295 67,208 — 25,797 (38,136) — — (12,339) 8,604 (19) (3,754) (0.34) 0.26 11,423 26,317 37,740 10,118 (121,285) 24,150 2,956 9,998 43,743 49,625 (1) In this Annual Report on Form 10-K, we disclose and discuss FFO, AFFO, Adjusted EBITDA and NOI, all of which meet the definition of “non-GAAP financial measures” set forth in Item 10(e) of Regulation S-K promulgated by the SEC. For further discussion about our use of FFO, AFFO, Adjusted EBITDA and NOI as non-GAAP financial measures, and a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures.” 40 Balance Sheet Data Investment in real estate, net Cash and cash equivalents Restricted cash Total assets Notes payable, net of unamortized debt costs Total liabilities Stockholders’ equity Total equity Property-Related Data (unaudited) Residential property rentable square feet Flatbush Gardens % leased Tribeca House % leased 250 Livingston Street % leased Aspen % leased 10 West 65th Street % leased Clover House % leased Commercial and retail property rentable square feet 141 Livingston Street (remeasured) % leased 250 Livingston Street (remeasured) % leased Tribeca House % leased Aspen % leased 2020 2019 (in thousands) As of December 31, 2018 2017 2016 $ $ 1,090,498 72,058 16,974 1,207,866 1,079,458 1,103,752 39,462 104,114 $ 1,080,533 42,500 14,432 1,166,207 997,903 1,024,424 57,234 141,783 $ 1,025,737 37,028 8,836 1,101,008 913,564 939,523 65,182 161,485 $ 996,892 7,940 13,730 1,052,085 843,946 866,494 74,912 185,591 823,077 37,547 11,105 905,208 754,459 778,992 38,201 126,216 1,746 94.7% 483 89.7% 27 94.4% 166 94.4% 76 98.8% 102 98.7% 216 100% 342 100% 77 81% 21 92% 1,749 97.6% 483 98.2% 27 100.0% 166 98.7% 76 98.8% 102 94.3% 216 100% 342 100% 77 100% 21 82% 1,749 98.4% 483 95.5% 27 94.4% 166 99.6% 76 86.6% — — 216 100% 353 100% 77 100% 21 100% 1,735 97.1% 482 91.1% 27 94.4% 166 96.1% 75 87.8% — — 216 100% 353 100% 77 100% 21 100% 1,735 96.9% 481 90.2% 27 87.6% 166 98.7% — — — — 216 100% 353 100% 77 100% 21 100% ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the captions “Selected Financial Data” and “Cautionary Note Concerning Forward-Looking Statements,” and in our financial statements and the related notes thereto appearing elsewhere in this Annual Report on Form 10-K. Overview of Our Company Clipper Realty Inc. (the “Company” or “we”) is a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multifamily residential and commercial properties in the New York metropolitan area, with a current portfolio in Manhattan and Brooklyn. Our primary focus is to own, manage and operate our portfolio and to acquire and reposition additional multifamily residential and commercial properties in the New York metropolitan area. The Company has been organized and operates in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the U.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year ended December 31, 2015. 41 The Company was incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares ‐of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a REIT for U.S. federal income tax purposes. In February 2017, the Company sold 6,390,149 primary shares of common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) to investors in an initial public offering (“IPO”) at $13.50 per share. The proceeds, net of offering costs, were approximately $78.7 million. The Company contributed the IPO proceeds to the Operating Partnership in exchange for units in the Operating Partnership. On May 9, 2017, the Company completed the purchase of 107 Columbia Heights (since rebranded as “Clover House”), a 158-unit apartment community located in Brooklyn Heights, New York, for $87.5 million. On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in Manhattan, New York, for $79.0 million. On November 8, 2019, the Company completed the acquisition of property located at 1010 Pacific Street in Prospect Heights, New York, for $31.0 million. As of December 31, 2020, the Company owns: • • • • • • • two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan; one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings; two primarily commercial properties in Downtown Brooklyn (one of which includes 36 residential apartment units); one residential/retail rental property at 1955 1st Avenue in Manhattan; one residential rental property at 107 Columbia Heights in the Brooklyn Heights neighborhood of Brooklyn; one residential rental property at 10 West 65th Street in the Upper West Side neighborhood of Manhattan; and one property at 1010 Pacific Street in the Prospect Heights neighborhood of Brooklyn, to be redeveloped as a residential rental building. These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation. On February 18, 2021, the Company refinanced the existing 141 Livingston Street loan with a $100 million, ten-year secured first mortgage note with Citi Real Estate Funding Inc. The note matures on March 6, 2031, bears interest at 3.21% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium. The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and the two Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the Operating Partnership. The Operating Partnership’s interests in the LLC subsidiaries generally entitle the Operating Partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distributions to the continuing investors who hold Class B LLC units in these LLC subsidiaries. The continuing investors own an aggregate amount of 26,317,396 Class B LLC units, representing 62.1% of the Company’s common stock on a fully diluted basis. Accordingly, the Operating Partnership’s interests in the LLC subsidiaries entitle the Operating Partnership to receive 37.9% of the aggregate distributions from the LLC subsidiaries. The Company, through the Operating Partnership, owns all of the ownership interests in the Aspen property, the Clover House property, the 10 West 65th Street property and the 1010 Pacific Street property. 42 COVID-19 Pandemic The COVID-19 pandemic has adversely impacted global economic activity and contributed to significant volatility in financial markets. The COVID-19 pandemic and associated government actions intended to curb its spread are creating disruptions in, and adversely impacting, many industries and have negatively impacted, and could continue to negatively impact, our business in a number of ways, including affecting our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. The Tribeca House property has experienced declines in leased occupancy and residential rental rate as a result of the COVID-19 pandemic; several of our other properties experienced smaller declines in leased occupancy as well. Certain of our commercial tenants have requested rent deferrals during the pandemic. In some cases, we may restructure rent and other obligations under our leases with tenants on terms that are less favorable to us than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions which may ultimately result in a further decrease in occupancy levels and rental rates across our portfolio as residents reduce their spending and replacement tenants become harder to find. The rapid development and fluidity with which the situation continues to develop precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic on our business. Nevertheless, COVID-19 presents uncertainty and risk with respect to our tenants, which could adversely affect the Company’s business, financial condition, liquidity and results of operations. Despite these continuing very challenging circumstances, our business has remained durable. Our properties have remained open and operational throughout the pandemic. We are taking the necessary steps to keep our employees and tenants safe in compliance with state and local orders, and we continue to provide typical services to our residents. Our rent collection rate during the fourth quarter of 2020 was 95.2%; for full-year 2020, our rent collection rate was 96.0%. At December 31, 2020, our properties were 95% leased. We expect our properties and the New York City market to remain desirable to a broad range of tenants and our operations to return to a more normal state over time. Stock Repurchase Program In August 2020, the Company’s board of directors (the “Board”) adopted a stock repurchase program to permit the repurchase of up to an aggregate of $10.0 million in outstanding shares of the Company’s common stock. Under the repurchase program, the Company was permitted to repurchase its common stock at any time, or from time to time. The Company anticipated funding for the program to come from available sources of liquidity, including cash on hand and future cash flow. The repurchase program permitted shares to be repurchased in open market or private transactions, through block trades or otherwise. The number of shares repurchased and the timing, manner, price and amount of any repurchases was to be determined at the Company’s discretion, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses of capital and the Company’s financial performance. The repurchase program was permitted to be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity and other factors deemed appropriate by the Company. These factors could also affect the timing and amount of share repurchases. The repurchase program did not obligate the Company to repurchase any particular number of shares. On November 24, 2020, the Company completed the stock repurchase program. During the year ended December 31, 2020, the Company repurchased 1,751,444 shares of common stock under the repurchase program for a total purchase price of approximately $10.0 million. How We Derive Our Revenue Our revenue consists primarily of rents received from our residential, commercial and, to a lesser extent, retail tenants. 43 Trends During 2020, several of the Company’s residential properties experienced declines in demand and rental rates as a result of the COVID-19 pandemic, as certain renters opted to live outside urban centers and remote working increased. At the Tribeca House property, average residential rent per square foot at December 31, 2020, was $64.20, down from $70.52 at December 31, 2019, and $69.58 at December 31, 2018. At the Aspen property, average residential rent per square foot at December 31, 2020, was $34.64, down from $36.60 at December 31, 2019, and $36.26 at December 31, 2018. At the Clover House property, average residential rent per square foot at December 31, 2020, was $49.36, down from $69.09 at December 31, 2019. Although urban office markets have also generally been negatively impacted as a result of the COVID-19 pandemic, with an increase in remote working leading to less demand for office space, the Company’s office properties have not been adversely affected from a rent perspective given its long-term leases with the City of New York. At the 141 Livingston Street property, the City’s annual rent on its lease, which expires at the end of 2025, increased by 25% beginning at the end of December 2020. At the nearby 250 Livingston Street property, the City’s lease, which commenced in August 2020, resulted in an initial 57% increase in blended rent per square foot and a 16% increase in rentable square feet through a remeasurement. Separately, as a result of the COVID-19 pandemic, certain of our smaller commercial tenants have requested and received partial rent deferrals, and certain of our other smaller commercial tenants declined to renew or terminated their leases. Throughout 2020, 2019 and 2018, we continued to benefit from relatively low interest rates. Our weighted average interest rate as of December 31, 2020, was approximately 3.8% per annum. Interest rates continue to be at relatively low levels versus historical norms. Factors that May Influence Future Results of Operations We derive approximately 74% of our revenues from rents received from residents in our apartment rental properties and the remainder from commercial and retail rental customers. We believe that we have expertise in operating, renovating and repositioning our properties. As we grow, we will likely add personnel as necessary to provide outstanding customer service to our residents in order to maintain or increase occupancy levels at our apartment communities and to preserve the ability to increase rents. This is likely to result in an increase in our operating and general and administrative expenses over time. A majority of the leases at our apartment communities are for approximately one-year terms, which, in a rising market, generally enables us to seek increased rents upon renewal of existing leases or commencement of new leases. This may offset the potential adverse effect of inflation or deflation on rental revenue, although residents may leave without penalty at the end of their lease terms for any reason and, in a falling market, may require us to receive decreased rents upon renewal of existing leases or commencement of new leases. Our ability to seek increased rents at our Flatbush Gardens property, our Aspen property and a portion of our 10 West 65th Street property is limited, however, as a result of the rent stabilization laws and regulations of New York City, including the Housing Stability and Tenant Protection Act of 2019, which was signed into law in New York in June 2019. These regulations generally limit rental increases that we can charge at our Flatbush Gardens property, our Aspen property and a portion of our 10 West 65th Street property upon lease renewal; effective October 1, 2020, such increases are 0% for a one-year lease and, for a two-year lease, 0% for the first year of the lease and 1% for the second year of the lease. The regulations also limit the maximum rent we can charge at our Flatbush Gardens property, our Aspen property and a portion of our 10 West 65th Street property on new leases. At our Aspen property, the residential units are subject to regulations established by the HDC, under which there are no rental restrictions on approximately 55% of the units and low- and middle-income restrictions on approximately 45% of the units. There are no rent stabilization restrictions at our Tribeca House properties, our 250 Livingston Street property, our Clover House property and a portion of our 10 West 65th Street property. We also incur costs on turnover of residents when one resident moves out and we prepare the apartment for a new resident. The costs include the costs of repainting and repairing apartment units, replacing obsolete or damaged appliances and re-leasing the units. While we budget for turnover and the costs associated therewith, our turnover cost may be affected by certain factors we cannot control. Excessive turnover and failure to properly manage turnover cost may adversely affect our operations and could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock. We seek earnings growth primarily through increasing rents and occupancy at existing properties, and acquiring additional apartment communities in markets complementing our existing portfolio locations. Our apartment and commercial operating properties are concentrated in six neighborhoods within the boroughs of Manhattan and Brooklyn in New York City, which makes us susceptible to adverse developments in these markets. As a result, we are particularly affected by the local economic conditions in these markets, including, but not limited to, changes in supply of or demand for apartment units in our markets, competition for real property investments in our markets, changes in government rules, regulations and fiscal policies, including those governing real estate usage and tax, and any environmental risks related to the presence of hazardous or toxic substances or materials at or in the vicinity of our properties, which could negatively affect our overall performance. 44 We may be unable to accurately predict future changes in national, regional or local economic, demographic or real estate market conditions. For example, continued volatility and uncertainty in the global, national, regional and local economies could make it more difficult for us to lease apartment, commercial and retail space and may require us to lease our apartment, commercial and retail space at lower rental rates than projected and may lead to an increase in resident defaults. In addition, these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices. These conditions, or others we cannot predict, could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock. As a public company with shares listed on a U.S. exchange, we incur general and administrative expenses, including legal, accounting and other expenses, related to corporate governance, public reporting and compliance with various provisions of the Sarbanes-Oxley Act, related regulations of the SEC, including compliance with the reporting requirements of the Exchange Act, and the requirements of the national securities exchange on which our stock is listed. Results of Operations Our focus throughout the years ended December 31, 2020, 2019 and 2018, has been to manage our properties to optimize revenues and control costs, while continuing to renovate and reposition certain properties. The discussion below highlights the specific properties contributing to the changes in the results of operations, and focuses on the properties that the Company owned and operated for the full period in each comparison (Clover House was under renovation during the first three quarters of 2019). Income Statement for the Years Ended December 31, 2020 and 2019 (in thousands) Revenues Residential rental income Commercial rental income Total revenues Operating Expenses Property operating expenses Real estate taxes and insurance General and administrative Depreciation and amortization Total operating expenses Gain on termination of lease Income from operations Interest expense, net Loss on modification/extinguishment of debt Gain on involuntary conversion Net loss 2020 90,543 $ 32,307 122,850 29,902 28,286 9,728 23,630 91,546 838 32,142 (40,228) (4,228) 85 (12,229) $ $ $ Less: Clover House 2020 excluding Clover House 2019 Less: Clover House 2019 excluding Clover House Increase (decrease) % 6,581 $ 17 6,598 83,962 $ 32,290 116,252 87,386 $ 28,779 116,165 1,759 $ 2 1,761 85,627 $ 28,777 114,404 1,319 1,515 561 2,334 5,729 — 869 (3,019) — — (2,150) $ 28,583 26,771 9,167 21,296 85,817 838 31,273 (37,209) (4,228) 85 (10,079) $ 28,887 24,966 9,167 19,649 82,669 — 33,496 (35,187) (2,432) — (4,123) $ 673 442 221 775 2,111 — (350) (1,056) (661) — (2,067) $ 28,214 24,524 8,946 18,874 80,558 — 33,846 (34,131) (1,771) — (2,056) $ (1,665) 3,513 1,848 369 2,247 221 2,422 5,259 838 (2,573) 3,078 2,457 85 (8,023) (1.9)% 12.2% 1.6% 1.3% 9.2% 2.5% 12.8% 6.5% NM (7.6)% 9.0% 138.7% NM 390.2% The dollar amounts in the narrative disclosure below are in thousands, other than the base rent per square foot figures. Revenue. Residential rental income, excluding Clover House, decreased from $85,627 for the year ended December 31, 2019, to $83,962 for the year ended December 31, 2020, primarily due to decreases in rental rates and leased occupancy at Tribeca House as a result of the COVID-19 pandemic, partially offset by increases in rental rates at Flatbush Gardens and the completion of renovations and the lease of apartments at the 10 West 65th Street property during 2019. Base rent per square foot decreased at the Tribeca House property from $70.52 (98.2% leased occupancy) at December 31, 2019, to $64.20 (89.7% leased occupancy) at December 31, 2020. Base rent per square foot increased at the Flatbush Gardens property from $24.61 at December 31, 2019, to $25.14 at December 31, 2020. 45 Commercial rental income, excluding Clover House, increased from $28,777 for the year ended December 31, 2019, to $32,290 for the year ended December 31, 2020, primarily due to the commencement of a new lease at the 250 Livingston Street property and an increase in straight-line rent at the 141 Livingston Street property, partially offset by the termination of certain leases at the Tribeca House property. Property operating expenses. Property operating expenses include property-level costs such as compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses, excluding Clover House, were essentially flat for the year ended December 31, 2020, compared to the year ended December 31, 2019. Real estate taxes and insurance. Real estate taxes and insurance expenses, excluding Clover House, increased from $24,524 for the year ended December 31, 2019, to $26,771 for the year ended December 31, 2020, primarily due to increased real estate taxes and insurance expense across the portfolio. General and administrative. General and administrative expenses, excluding Clover House, increased from $8,946 for the year ended December 31, 2019, to $9,167 for the year ended December 31, 2020, primarily due to increases in payroll and non-cash LTIP amortization expense, partially offset by a decrease in legal expenses. Depreciation and amortization. Depreciation and amortization expense, excluding Clover House, increased from $18,874 for the year ended December 31, 2019, to $21,296 for the year ended December 31, 2020, due to additions to real estate across the portfolio, partially offset by reduced intangibles amortization at the 250 Livingston Street property. Gain on termination of lease. Gain on termination of lease represents the write-off of unamortized assets and liabilities in relation to the termination of a lease at the Tribeca House property. Interest expense, net. Interest expense, net, excluding Clover House, increased from $34,131 for the year ended December 31, 2019, to $37,209 for the year ended December 31, 2020. The increase primarily resulted from the refinancing of the 250 Livingston Street property in May 2019, the refinancing of the Flatbush Gardens property in May 2020 and a decrease in interest expense capitalization in connection with property development. Interest expense, excluding Clover House, included amortization of loan costs of $1,083 and $1,472 for the years ended December 31, 2020 and 2019, respectively. Loss on modification/extinguishment of debt. Loss on modification/extinguishment of debt for the year ended December 31, 2020, related to the refinancing of the Flatbush Gardens loan in May 2020; the amount included charges for early modification of debt and the write-off of unamortized debt costs. Loss on modification/extinguishment of debt, excluding Clover House, for the year ended December 31, 2019, related to the refinancing of the 250 Livingston Street loan in May 2019; the amount included the write-off of unamortized debt costs. Gain on involuntary conversion. Gain on involuntary conversion represented insurance proceeds in excess of the carrying value of assets disposed of related to fire damage suffered by two units at the Flatbush Gardens property. Net loss. As a result of the foregoing, net loss, excluding Clover House, increased from $2,056 for the year ended December 31, 2019, to $10,079 for the year ended December 31, 2020. For comparison of the year ended December 31, 2019, to the year ended December 31, 2018, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 46 Liquidity and Capital Resources As of December 31, 2020, we had $1,079.5 million of indebtedness (net of unamortized issuance costs) secured by our properties, $72.1 million of cash and cash equivalents, and $17.0 million of restricted cash. See Note 7 of the accompanying “Notes to Consolidated Financial Statements” for a discussion of the Company’s property-level debt. As a REIT, we are required to distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gains, to stockholders on an annual basis. We expect that these needs will be met from cash generated from operations and other sources, including proceeds from secured mortgages and unsecured indebtedness, proceeds from additional equity issuances and cash generated from the sale of property. Short-Term and Long-Term Liquidity Needs Our short-term liquidity needs will primarily be to fund operating expenses, recurring capital expenditures, property taxes and insurance, interest and scheduled debt principal payments, general and administrative expenses, and distributions to stockholders and unit holders. We generally expect to meet our short-term liquidity requirements through net cash provided by operations and cash on hand, and we believe we will have sufficient resources to meet our short-term liquidity requirements. Our principal long-term liquidity needs will primarily be to fund additional property acquisitions, major renovation and upgrading projects, and debt payments and retirements at maturity. We do not expect that net cash provided by operations will be sufficient to meet all of these long-term liquidity needs. We anticipate meeting our long-term liquidity requirements by using cash as an interim measure and funds from public and private equity offerings and long-term secured and unsecured debt offerings. We believe that as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements. These sources include the incurrence of additional debt and the issuance of additional equity. However, we cannot provide assurance that this will be the case. Our ability to secure additional debt will depend on a number of factors, including our cash flow from operations, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed. Our ability to access the equity capital markets will depend on a number of factors as well, including general market conditions for REITs and market perceptions about our company. We believe that our current cash flows from operations and cash on hand, coupled with additional mortgage debt, will be sufficient to allow us to continue operations, satisfy our contractual obligations and make distributions to our stockholders and the members of our LLC subsidiaries for at least the next twelve months. However, no assurance can be given that we will be able to refinance any of our outstanding indebtedness in the future on favorable terms or at all. 47 Property-Level Debt The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows (in thousands): Property Flatbush Gardens, Brooklyn, NY 250 Livingston Street, Brooklyn, NY 141 Livingston Street, Brooklyn, NY Tribeca House, Manhattan, NY Aspen, Manhattan, NY Clover House, Brooklyn, NY 10 West 65th Street, Manhattan, NY 1010 Pacific Street, Brooklyn, NY Flatbush Gardens Maturity 6/1/2032 6/6/2029 6/1/2028 3/6/2028 7/1/2028 12/1/2029 11/1/2027 6/24/2021 $ Interest Rate 3.125% 3.63% 3.875% 4.506% 3.68% 3.53% 3.375% LIBOR + 3.60% $ December 31, 2020 329,000 125,000 74,241 360,000 65,485 82,000 33,619 20,375 1,089,720 There is $329.0 million of mortgage debt secured by Flatbush Gardens, as of December 31, 2020, in the form of a mortgage note to New York Community Bank. The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest- only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. We have the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined. 250 Livingston Street There is $125.0 million in mortgage debt secured by 250 Livingston Street, as of December 31, 2020, in the form of a mortgage note to Citi Real Estate Funding Inc. The note matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. We have the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium. 141 Livingston Street There is $74.2 million in mortgage debt secured by 141 Livingston Street, as of December 31, 2020, in the form of a mortgage note to New York Community Bank. The note matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of approximately $374,000 thereafter based on a 30-year amortization schedule. We may prepay the debt in whole or in part, subject to a prepayment premium. On February 18, 2021, the Company refinanced the above 141 Livingston Street loan with a $100.0 million, ten-year secured first mortgage note with Citi Real Estate Funding Inc. The note matures on March 6, 2031, bears interest at 3.21% and requires interest-only payments for the entire term. We have the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium. Tribeca House There is a $360.0 million loan secured by the Tribeca House properties, as of December 31, 2020, through Deutsche Bank AG. The loan matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. We have the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027. Aspen There is $65.5 million in mortgage debt secured by Aspen, as of December 31, 2020, in the form of a mortgage note to Capital One Multifamily Finance LLC. The note matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of approximately $321,000 thereafter based on a 30-year amortization schedule. We have the option to prepay the note prior to the maturity date, subject to a prepayment premium. 48 Clover House There is $82.0 million in mortgage debt secured by Clover House as of December 31, 2020, in the form of a mortgage note to MetLife Investment Management. The note matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. We have the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029. 10 West 65th Street There is $33.6 million in mortgage debt secured by 10 West 65th Street as of December 31, 2020, in the form of a mortgage note to New York Community Bank, entered into in connection with the acquisition of the property. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through November 2019, and monthly principal and interest payments of approximately $152,000 thereafter based on a 30-year amortization schedule. We have the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined. 1010 Pacific Street There is $18.6 million in mortgage debt secured by 1010 Pacific Street as of December 31, 2020, in the form of a mortgage note to CIT Bank, N.A., entered into in connection with the acquisition of the property. There is also a pre-development bridge loan secured by the property with the same lender that will provide up to $3.0 million for 100% of eligible pre-development and carrying costs, of which approximately $1.8 million was drawn as of December 31, 2020. The notes mature on June 24, 2021, require interest-only payments and bear interest at one-month LIBOR (with a floor of 1.25%) plus 3.60% (4.85% as of December 31, 2020). The Company has guaranteed this mortgage note and has complied with the financial covenants therein. The Company currently intends to refinance the notes with a construction loan prior to maturity, although there are no assurances that the Company will be able to do so. The Company has provided a limited guaranty for the mortgage notes at several of its properties. The Company’s loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and debt yield ratios. In the event that they are not compliant, certain lenders may require cash sweeps of rent until the conditions are cured. The Company is not in default on any of its loan agreements. Contractual Obligations and Commitments The following table summarizes principal and interest payment requirements on our debt under terms as of December 31, 2020: 2021 2022 2023 2024 2025 Thereafter Total Principal (in thousands) Interest Total $ $ 24,150 $ 3,918 4,066 4,214 4,380 1,048,992 1,089,720 $ 40,864 $ 40,245 40,097 39,962 39,783 188,772 389,723 $ 65,014 44,163 44,163 44,176 44,163 1,237,764 1,479,443 The Company is obligated to provide parking availability through August 2025 under a lease with a tenant at the 250 Livingston Street property; the current cost to the Company is approximately $205,000 per year. Distributions In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. During the years ended December 31, 2020, 2019 and 2018, we paid dividends and distributions on our common shares, Class B LLC units and LTIP units totaling $17.2 million, $17.1 million and $17.0 million, respectively. 49 Operating activities Investing activities Financing activities Cash Flows for the Years ended December 31, 2020 and 2019 (in thousands) Year Ended December 31, 2020 2019 $ 15,990 $ (31,714) 47,824 23,772 (74,903) 62,199 Cash flows provided by (used in) operating activities, investing activities and financing activities for the years ended December 31, 2020 and 2019, are as follows: Net cash provided by operating activities was $15,990 for the year ended December 31, 2020, compared to $23,772 for the year ended December 31, 2019. The decrease during the 2020 period reflected a decrease of approximately $5,291 of cash generated by operating assets and liabilities (including increases in tenant and other receivables), plus a decrease of approximately $2,491 of cash flow from operating results. Net cash used in investing activities was $31,714 for the year ended December 31, 2020, compared to $74,903 for the year ended December 31, 2019. We spent approximately $31,811 and $43,774 on capital projects for the years ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, we received approximately $111 of insurance proceeds from the disposal of assets damaged in a fire at a property and funded $14 for the purchase of an interest rate cap. For the year ended December 31, 2019, we funded approximately $31,129 for the acquisition of the 1010 Pacific Street property. Net cash provided by financing activities was $47,824 for the year ended December 31, 2020, compared to $62,199 for the year ended December 31, 2019. Cash was primarily provided in the year ended December 31, 2020, by proceeds from a new loan on the Flatbush Gardens property ($329,000), partially offset by repayment of the existing loan on the Flatbush Gardens property ($246,000), loan issuance and extinguishment costs ($5,219) and funds used to repurchase common stock ($10,002); and in the year ended December 31, 2019, by proceeds from new loans on the 250 Livingston Street, Clover House and 1010 Pacific street properties ($226,457) offset by repayment of existing loans on the 250 Livingston Street and Clover House properties ($139,731) and loan issuance and extinguishment costs ($4,531). The Company paid distributions of $17,243 and $17,089 in the years ended December 31, 2020 and 2019, respectively. For comparison of the year ended December 31, 2019, to the year ended December 31, 2018, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Income Taxes No provision has been made for income taxes since all of the Company’s operations are held in pass-through entities and accordingly the income or loss of the Company is included in the individual income tax returns of the partners or members. We elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our first taxable three months ended March 31, 2015. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. We believe that we are organized and operate in a manner that will enable us to qualify and be taxed as a REIT and we intend to continue to operate so as to satisfy the requirements for qualification as a REIT for federal income tax purposes. Inflation Inflation in the United States has been relatively low in recent years and did not have a significant impact on the results of operations for the Company’s business for the periods reported in the consolidated financial statements. We do not believe that inflation currently poses a material risk to the Company. The leases at our residential rental properties, which comprise approximately 74% of our revenue, are short-term in nature. Our longer-term commercial and retail leases would generally allow us to recover some increased costs in the event of significant inflation. Although the impact of inflation has been relatively insignificant in recent years, it does remain a factor in the United States economy and could increase the cost of acquiring or replacing properties in the future. Off-Balance Sheet Arrangements As of December 31, 2020, we do not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures. Non-GAAP Financial Measures In this Annual Report on Form 10-K, we disclose and discuss funds from operations (“FFO”), adjusted funds from operations (“AFFO”), adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and net operating income (“NOI”), all of which meet the definition of “non-GAAP financial measures” set forth in Item 10(e) of Regulation S-K promulgated by the SEC. While management and the investment community in general believe that presentation of these measures provides useful information to investors, neither FFO, AFFO, Adjusted EBITDA, nor NOI should be considered as an alternative to net income (loss) or income from operations as an indication of our performance. We believe that to understand our performance further, FFO, AFFO, Adjusted EBITDA, and NOI should be compared with our reported net income or income from operations and considered in addition to cash flows computed in accordance with GAAP, as presented in our consolidated financial statements. 50 Funds from Operations and Adjusted Funds from Operations FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and impairment adjustments, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT. AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight-line rent adjustments to revenue from long-term leases, amortization costs incurred in originating debt, interest rate cap mark-to-market adjustments, amortization of non-cash equity compensation, acquisition and other costs, loss on modification/extinguishment of debt, gain on involuntary conversion, gain on termination of lease and non-recurring litigation-related expenses, less recurring capital spending. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO useful in determining funds available for payment of distributions. Neither FFO nor AFFO represent net income (loss) or cash flows from operations computed in accordance with GAAP. You should not consider FFO and AFFO to be alternatives to net income (loss) as reliable measures of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (computed in accordance with GAAP) as measures of liquidity. Neither FFO nor AFFO measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities computed in accordance with GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO. The following table sets forth a reconciliation of FFO and AFFO for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands): FFO Net loss Real estate depreciation and amortization FFO AFFO FFO Amortization of real estate tax intangible Amortization of above- and below-market leases Straight-line rent adjustments Amortization of debt origination costs Interest rate cap mark-to-market adjustments Amortization of LTIP awards Acquisition and other Loss on modification/extinguishment of debt Gain on involuntary conversion Gain on termination of lease Non-recurring litigation-related expenses Recurring capital spending AFFO 2020 Years ended December 31, 2019 2018 $ $ $ $ (12,229) $ 23,630 11,401 $ 11,401 $ 481 (390) (1,180) 1,212 — 1,805 — 4,228 (85) (838) 724 (514) 16,844 $ (4,123) $ 19,649 15,526 $ 15,526 $ 482 (1,180) 1,211 1,687 — 1,510 — 2,432 — — 966 (593) 22,041 $ (9,001) 18,005 9,004 9,004 475 (1,917) 1,029 1,289 (208) 1,940 101 8,872 (194) — — (573) 19,818 Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net income (loss) before allocation to non-controlling interests, plus real estate depreciation and amortization, amortization of identifiable intangibles, straight-line rent adjustments to revenue from long-term leases, amortization of non- cash equity compensation, interest expense (net), acquisition and other costs, loss on modification/extinguishment of debt and non-recurring litigation-related expenses, less gain on involuntary conversion and gain on termination of lease. 51 We believe that this measure provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We consider Adjusted EBITDA to be a meaningful financial measure of our core operating performance. However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to that of other REITs. The following table sets forth a reconciliation of Adjusted EBITDA for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands): Adjusted EBITDA Net loss Real estate depreciation and amortization Amortization of real estate tax intangible Amortization of above- and below-market leases Straight-line rent adjustments Amortization of LTIP awards Interest expense, net Acquisition and other Loss on modification/extinguishment of debt Gain on involuntary conversion Gain on termination of lease Non-recurring litigation-related expenses Adjusted EBITDA Net Operating Income 2020 Years ended December 31, 2019 2018 (12,229) $ 23,630 481 (390) (1,180) 1,805 40,228 — 4,228 (85) (838) 724 56,374 $ (4,123) $ 19,649 482 (1,180) 1,211 1,510 35,187 — 2,432 — — 966 56,134 $ (9,001) 18,005 475 (1,917) 1,029 1,940 32,781 101 8,872 (194) — — 52,091 $ $ We believe that NOI is a useful measure of our operating performance. We define NOI as income from operations plus real estate depreciation and amortization, general and administrative expenses, acquisition and other costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases, less gain on termination of lease. We believe that this measure is widely recognized and provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We use NOI to evaluate our performance because NOI allows us to evaluate the operating performance of our company by measuring the core operations of property performance and capturing trends in rental housing and property operating expenses. NOI is also a widely used metric in valuation of properties. However, NOI should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to that of other REITs. 52 The following table sets forth a reconciliation of NOI for the periods presented to income from operations, computed in accordance with GAAP (amounts in thousands): NOI Income from operations Real estate depreciation and amortization General and administrative expenses Acquisition and other Amortization of real estate tax intangible Amortization of above- and below-market leases Straight-line rent adjustments Gain on termination of lease NOI Recent Accounting Pronouncements 2020 Years ended December 31, 2019 2018 $ $ 32,142 $ 23,630 9,728 — 481 (390) (1,180) (838) 63,573 $ 33,496 $ 19,649 9,167 — 482 (1,180) 1,211 — 62,825 $ 32,458 18,005 9,873 101 475 (1,917) 1,029 — 60,024 See Note 3, “Significant Accounting Policies” of our consolidated financial statements included in Item 15 for a discussion of recent accounting pronouncements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our future income, cash flows and fair value relevant to our financial instruments depends upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control, contribute to interest rate risk. To manage this risk, we purchased interest rate caps on the $410.0 million of Tribeca House debt outstanding (prior to the Tribeca House debt refinancing on February 21, 2018), the $64.7 million of Clover House debt outstanding (prior to the Clover House debt refinancing on November 8, 2019), the $75.0 million of 250 Livingston Street debt outstanding (prior to the 250 Livingston Street debt refinancing on May 31, 2019) and the $20.4 million of 1010 Pacific Street debt outstanding as of December 31, 2020, that would provide interest rate protection if one-month LIBOR exceeds 2.0% for the Tribeca House loans, 3.0% for the Clover House loans, 4.0% for the 250 Livingston Street loan and 3.6% for the 1010 Pacific Street loans. On April 27, 2018, we terminated the Tribeca House interest rate cap. A one percent change in interest rates on our $20.4 million of variable rate debt as of December 31, 2020, would impact annual net income by approximately $0.2 million. The fair value of the Company’s notes payable was approximately $1,204.2 million and $1,058.1 million as of December 31, 2020 and 2019, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements beginning on Page F-1 of this Annual Report on Form 10-K are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Annual Report on Form 10-K. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level as a result of the material weakness in our internal control over financial reporting discussed below. 53 Changes in Internal Control Other than the material weakness described below, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the last quarter covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2020, as a result of the material weakness in our internal control over financial reporting discussed below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2020, our management identified a material weakness in our internal control over financial reporting related to an error identified in connection with the accounting for straight-line rent associated with the reassessment of a lease term. Management identified the following deficiency in our processes and procedures that constitute a material weakness in our internal control over financial reporting: the misapplication of guidance in connection with accounting for a modification of an existing commercial lease. Our management communicated the results of its assessment to the Audit Committee of the Board of Directors of the Company. Management is in the process of implementing remediation procedures to address the control deficiency that led to the material weakness. The remediation plan includes, but is not limited to, the implementation of additional review procedures regarding the method for accounting for straight-line rent associated with the reassessment of the lease term. We believe these measures will remediate the material weakness noted. While we have completed some of these measures as of the date of this report, we have not completed and tested all of the planned corrective processes, enhancements, procedures and related evaluation that we believe are necessary to determine whether the material weakness has been fully remediated. We believe the corrective actions and controls need to be in operation for a sufficient period of time for management to conclude that the control environment is operating effectively and has been adequately tested through audit procedures. Therefore, the material weakness has not been fully remediated as of the date of this report. As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weakness, we may determine that additional measures or time are required to address the control deficiencies or that we need to modify or otherwise adjust the remediation measures described above. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluation of our internal control over financial reporting. As long as we qualify as an “emerging growth company” as defined by the Jumpstart our Business Startups Act of 2012, we will not be required to obtain an auditor’s attestation report on our internal controls in future Annual Reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. Accordingly, our independent registered public accounting firm did not perform an audit of our internal control over financial reporting for the fiscal year ended December 31, 2020. Limitations on Effectiveness of Controls and Procedures In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. ITEM 9B. OTHER INFORMATION None. 54 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III The information required by Item 10 will be set forth in the Company’s Proxy Statement, to be filed no later than 120 days after the end of our fiscal year. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 will be set forth in the Company’s Proxy Statement, to be filed no later than 120 days after the end of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Securities Authorized For Issuance Under Equity Compensation Plans In June 2020, the stockholders of the Company approved (i) an amendment to the 2015 Omnibus Incentive Compensation Plan (the “2015 Omnibus Plan”), which increased the number of shares of common stock reserved for issuance under the 2015 Omnibus Plan from 1,000,000 to 2,000,000; and (ii) an amendment to the 2015 Non-Employee Director Plan (the “2015 Director Plan”), which increased the number of shares of common stock reserved for issuance under the 2015 Director Plan from 350,000 to 700,000. We have the following shares of our common stock reserved for future issuance under our 2015 Omnibus Plan, as amended, and 2015 Director Plan, as amended. Equity Compensation Plan Information Plan category Equity compensation plans approved by security holders 2015 Omnibus Plan 2015 Director Plan Equity compensation plans not approved by security holders Total (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights 1,054,539 357,747 — 1,412,286 (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) — — — — 945,461 342,253 — 1,287,714 The remaining information required by Item 12 will be set forth in the Company’s Proxy Statement, to be filed no later than 120 days after the end of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 will be set forth in the Company’s Proxy Statement, to be filed no later than 120 days after the end of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 will be set forth in the Company’s Proxy Statement, to be filed no later than 120 days after the end of our fiscal year. 55 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Annual Report on Form 10-K: PART IV 1) Consolidated Financial Statements: See Index to Consolidated Financial Statements and Schedule on page F-1 of this Form 10-K 2) Financial Statement Schedule: See Index to Consolidated Financial Statements and Schedule on page F-1 of this Form 10-K 3) Exhibits: See the Exhibit Index 56 Exhibit Number 3.1* 3.2* 3.3* 4.1** 10.1* 10.2* 10.3* 10.4* 10.5* 10.6* 10.7†* 10.8†* 10.9†* 10.10†* 10.11†* 10.12†* 10.13†* 10.14†* 10.15†* 10.16* Exhibit Index Description Articles of Amendment and Restatement Bylaws Articles Supplementary Description of Securities Amended and Restated Limited Liability Company Agreement of Berkshire Equity LLC Amended and Restated Limited Liability Company Agreement of 50/53 JV LLC Second Amended and Restated Limited Liability Company Agreement of Renaissance Equity Holdings LLC Amended and Restated Limited Liability Company Agreement of Gunki Holdings LLC Registration Rights Agreement, made and entered into as of August 3, 2015, between Clipper Realty Inc. and FBR Capital Markets & Co. Registration Rights Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and each of the Holders from time to time party thereto. Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and David Bistricer Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and Lawrence Kreider Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and Jacob Schwimmer Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and JJ Bistricer Clipper Realty Inc. 2015 Omnibus Incentive Compensation Plan Clipper Realty Inc. 2015 Non-Employee Director Plan Clipper Realty Inc. 2015 Executive Incentive Compensation Plan Clipper Realty Inc. 2015 Omnibus Incentive Compensation Plan Restricted LTIP Unit Agreement Clipper Realty Inc. 2015 Non-Employee Director Plan Restricted LTIP Unit Agreement Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Renaissance Equity Holdings LLC 57 10.17* 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* 10.24* 10.25* 10.26* 10.27* 10.28* 10.29* 10.30* 10.31* 10.32* 10.33* Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Berkshire Equity LLC Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Gunki Holdings LLC Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and 50/53 JV LLC Tax Protection Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P., Renaissance Equity Holdings LLC, Berkshire Equity LLC, Gunki Holdings LLC, 50/53 JV LLC, and each of the Continuing Investors listed on Schedules A-D thereto Shared Services Agreement, made and entered into as of August 3, 2015, by and among Clipper Equity LLC and Clipper Realty L.P. Shared Services Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Clipper Equity LLC Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein Indemnification Agreement, made and entered into as of August 3, 2015, by and among David Bistricer, Trapeze Inc., Clipper Realty Inc., Clipper Realty L.P., and Berkshire Equity LLC Amended and Restated Loan Agreement, made and entered into as of December 15, 2014, by and among 50 Murray Street Acquisition LLC, German American Capital Corporation, and Deutsche Bank AG, New York Branch Joinder, Reaffirmation and Ratification of Guaranty of Recourse Obligations and Environmental Indemnity Agreement, made and entered into as of August 3, 2015, by and among David Bistricer, Trapeze Inc., Clipper Realty L.P., and Deutsche Bank AG, New York Branch First Mezzanine Loan Agreement, made and entered into as of December 15, 2014, by and among 50 Murray Mezz LLC, 50 Murray Mezz Funding LLC, and 50 Murray Mezz Funding LLC Joinder, Reaffirmation and Ratification of First Mezzanine Guaranty of Recourse Obligations and First Mezzanine Environmental Indemnity Agreement, made and entered into as of August 3, 2015, by and among David Bistricer, Trapeze Inc., Clipper Realty L.P., and 50 Murray Mezz Funding LLC Loan Agreement, made and entered into as of December 12, 2014, by and among 141 Livingston Owner LLC and Citibank, N.A. 58 10.34* 10.35* 10.36* 10.37* 10.38* 10.39* 10.40* 10.41* 10.42* 10.43* 10.44* 10.45* 10.46* 10.47* First Amendment to Loan Agreement, Guaranty, Environmental Indemnity and other Loan Documents, made and entered into as of August 3, 2015, by and among 141 Livingston Owner LLC, Citibank, N.A., Clipper Realty L.P., David Bistricer, and Sam Levinson Loan Agreement, made and entered into as of May 1, 2013, by and among 250 Livingston Owner LLC and Citigroup Global Markets Realty Corp. Consolidation, Modification, Extension and Spreader Agreement, Assignment of Lease and Rents and Security Agreement, made and entered into as of September 24, 2012, by and among Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G, and New York Community Bank Mortgage, Assignment of Leases and Rents, and Security Agreement, made and entered into as of October 31, 2014, by and among Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G, and New York Community Bank Lease, made and entered into as of December 17, 2015, by and between Berkshire Equity LLC and the City of New York. Lease, made and entered into as of January 1, 1997, by and between NPMM Realty Inc. and the City of New York Letter Regarding Option to Renew Lease, dated as of December 28, 2010, from the City of New York to Berkshire Equity LLC Lease, made and entered into as of July 30, 1999, by and between Livingston Acquisition, LLC and the City of New York Consent Agreement, made and entered into as of December 7, 2015, by and among Deutsche Bank Trust Company Americas, as trustee on behalf of the registered holders of GS Mortgage Securities Corporation II, Commercial Mortgage Pass Through Certificates, Series 2013-GCJ12, and 250 Livingston Owner LLC Amendment No. 1 to Registration Rights Agreement, made and entered into as of July 7, 2016, between Clipper Realty Inc. and FBR Capital Markets & Co. Multifamily Loan and Security Agreement (Non-Recourse), dated as of June 27, 2016, by and between Aspen 2016 LLC and Capital One Multifamily Finance, LLC Consolidation, Modification and Extension Agreement, Assignment of Leases and Rents and Security Agreement, made as of May 11, 2016, between 141 Livingston Owner LLC and New York Community Bank Guaranty of Recourse Obligations, dated as of May 11, 2016, made by Clipper Realty Inc. to and in favor of New York Community Bank Guaranty, dated as of May 11, 2016, made by Clipper Realty Inc. to and in favor of New York Community Bank 59 10.48* 10.49* 10.50* 10.51* 10.52* 10.53* 10.54*** 10.55*** 10.56*** 10.57*** 10.58**** 10.59†***** 10.60***** 10.61***** First Mezzanine Loan Agreement, made and entered into as of November 9, 2016, by and among 50 Murray Mezz LLC, 50 Murray Mezz Funding LLC Loan Agreement, made and entered into as of November 9, 2016, by and among 50 Murray Street Acquisition LLC and Deutsche Bank AG, New York Branch, as Lender and as Agent thereto Amendment No. 2 to Registration Rights Agreement, made and entered into as of November 3, 2016, between Clipper Realty Inc. and FBR Capital Markets & Co. Lease Renewal and Amendment Agreement, made and entered into as of December 15, 2016, by and between 250 Livingston Owner, LLC and the City of New York Limited Partnership Agreement of Clipper Realty L.P., dated as of August 3, 2015 Amendment No. 3 to Registration Rights Agreement, made and entered into February 2, 2017, between Clipper Realty Inc. and FBR Capital Markets & Co. Loan Agreement, dated February 21, 2018, between 50 Murray Street Acquisition LLC and Deutsche Bank AG, New York Branch First Mezzanine Loan Agreement, dated February 21, 2018, between 50 Murray Mezz One LLC and Deutsche Bank AG, New York Branch Second Mezzanine Loan Agreement, dated February 21, 2018, between 50 Murray Mezz Two LLC and Deutsche Bank AG, New York Branch Consolidation, Modification and Extension Agreement, Assignment of Leases and Rents and Security Agreement, dated February 21, 2018, between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, and Renaissance Equity Holdings LLC G and New York Community Bank Loan Agreement, dated May 31, 2019, between 250 Livingston Owner LLC and Citi Real Estate Funding Inc. Employment Agreement, dated April 7, 2020, between Clipper Realty Inc. and Michael Frenz Amended and Restated Mortgage Note, dated May 8, 2020, between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, and New York Community Bank Mortgage, Assignment of Leases and Rents and Security Agreement, dated May 8, 2020, between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, and New York Community Bank 10.62†****** First Amendment to the Clipper Realty Inc. 2015 Omnibus Incentive Compensation Plan 10.63†******* First Amendment to the Clipper Realty Inc. 2015 Non-Employee Director Plan 21.1******** List of subsidiaries 60 23.1******** Consent of BDO USA, LLP 24.1 31.1******** 31.2******** 32.1******** 32.2******** Power of Attorney (included on signature page hereto) Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS********* Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH********* Inline XBRL Taxonomy Extension Schema Document 101.CAL********* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB********* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE********* Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF********* Inline XBRL Taxonomy Extension Definition Linkbase Document 104********* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * † ** *** **** ***** Incorporated by reference to the Company’s registration statement on Form S-11 (No. 333-214021) Indicates management contract or compensation plan Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2019, filed on March 12, 2020 Incorporated by reference to the Company’s Form 8-K dated February 21, 2018, filed on February 27, 2018 Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2019, filed on August 1, 2019 Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 31, 2020, filed on May 11, 2020 ****** Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on April 29, 2020 ******* Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on April 29, 2020 ******** Filed herewith ********* Submitted electronically with the report 61 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned. SIGNATURES March 16, 2021 CLIPPER REALTY INC. By: /s/ David Bistricer David Bistricer Co-Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Bistricer and Sam Levinson his or her true and lawful attorneys-in-fact (with full power to each of them to act alone), with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, and to file the same, with the exhibits thereto, and other documents in connection herewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, full power and authority to do and perform each and every act and thing required and necessary to be done in and about the foregoing as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated. Name /s/ David Bistricer David Bistricer /s/ Michael C. Frenz Michael C. Frenz /s/ Sam Levinson Sam Levinson /s/ Howard M. Lorber Howard M. Lorber /s/ Robert J. Ivanhoe Robert J. Ivanhoe /s/ Roberto A. Verrone Roberto A. Verrone /s/ Richard Burger Richard Burger /s/ Harmon Spolan Harmon Spolan Title Date Co-Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Co-Chairman of the Board Director Director Director Director Director 62 March 16, 2021 March 16, 2021 March 16, 2021 March 16, 2021 March 16, 2021 March 16, 2021 March 16, 2021 March 16, 2021 Index to Consolidated Financial Statements and Schedule Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 Notes to Consolidated Financial Statements Financial Statement Schedule Schedule III – Real Estate and Accumulated Depreciation F-1 Page F-2 F-3 F-4 F-5 F-6 F-7 F-27 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Brooklyn, NY Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Clipper Realty Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company’s auditor since 2014. New York, NY March 16, 2021 F-2 Clipper Realty Inc. Consolidated Balance Sheets (In thousands, except for share and per share data) ASSETS Investment in real estate Land and improvements Building and improvements Tenant improvements Furniture, fixtures and equipment Real estate under development Total investment in real estate Accumulated depreciation Investment in real estate, net Cash and cash equivalents Restricted cash Tenant and other receivables, net of allowance for doubtful accounts of $5,993 and $3,361, respectively Deferred rent Deferred costs and intangible assets, net Prepaid expenses and other assets TOTAL ASSETS LIABILITIES AND EQUITY Liabilities: Notes payable, net of unamortized loan costs of $10,262 and $11,528, respectively Accounts payable and accrued liabilities Security deposits Below-market leases, net Other liabilities TOTAL LIABILITIES Equity: Preferred stock, $0.01 par value; 100,000 shares authorized (including 140 shares of 12.5% Series A cumulative non-voting preferred stock), zero shares issued and outstanding Common stock, $0.01 par value; 500,000,000 shares authorized, 16,063,228 and 17,814,672 shares issued and outstanding, respectively Additional paid-in-capital Accumulated deficit Total stockholders’ equity Non-controlling interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY See accompanying notes to these consolidated financial statements. F-3 December 31, 2020 December 31, 2019 $ $ $ $ 540,859 $ 630,662 3,121 12,217 36,118 1,222,977 (132,479) 1,090,498 72,058 16,974 7,002 2,454 7,720 11,160 1,207,866 $ 1,079,458 $ 11,725 6,983 157 5,429 1,103,752 540,859 602,547 3,051 11,707 31,787 1,189,951 (109,418) 1,080,533 42,500 14,432 4,187 1,274 8,782 14,499 1,166,207 997,903 13,029 7,570 1,625 4,297 1,024,424 — — 160 87,347 (48,045) 39,462 64,652 104,114 1,207,866 $ 178 93,431 (36,375) 57,234 84,549 141,783 1,166,207 REVENUES Residential rental income Commercial rental income TOTAL REVENUES OPERATING EXPENSES Property operating expenses Real estate taxes and insurance General and administrative Acquisition and other Depreciation and amortization TOTAL OPERATING EXPENSES Gain on termination of lease INCOME FROM OPERATIONS Interest expense, net Loss on modification/extinguishment of debt Gain on involuntary conversion Net loss Net loss attributable to non-controlling interests Net loss attributable to common stockholders Basic and diluted net loss per share Clipper Realty Inc. Consolidated Statements of Operations (In thousands, except per share data) 2020 Year Ended December 31, 2019 2018 90,543 $ 32,307 122,850 29,902 28,286 9,728 — 23,630 91,546 838 32,142 (40,228) (4,228) 85 (12,229) 7,323 (4,906) $ (0.31) $ 87,386 $ 28,779 116,165 81,117 28,880 109,997 28,887 24,966 9,167 — 19,649 82,669 — 33,496 (35,187) (2,432) — (4,123) 2,458 (1,665) $ (0.11) $ 27,267 22,293 9,873 101 18,005 77,539 — 32,458 (32,781) (8,872) 194 (9,001) 5,368 (3,633) (0.22) $ $ $ See accompanying notes to these consolidated financial statements. F-4 Clipper Realty Inc. Consolidated Statements of Equity (In thousands, except for share data) Balance December 31, 2017 17,812,755 $ 178 $ 92,273 $ (17,539) $ 74,912 $ 110,679 $ 185,591 Number of common shares Common stock Additional paid-in- capital Accumulated deficit Total stockholders’ equity Non- controlling interests Total equity Issuance of common stock Amortization of LTIP grants Dividends and distributions Net loss Reallocation of non-controlling interests Balance December 31, 2018 Issuance of common stock Redemption of LTIP grants Amortization of LTIP grants Dividends and distributions Net loss Reallocation of non-controlling interests Balance December 31, 2019 Repurchase of common stock Amortization of LTIP grants Dividends and distributions Net loss Reallocation of non-controlling interests Balance December 31, 2020 — — — — — 17,812,755 1,917 — — — — — 17,814,672 (1,751,444) — — — — 16,063,228 $ — — — — — 178 — — — — — — 178 (18) — — — — 160 $ (7) — — — 679 92,945 25 (25) — — — 486 93,431 (9,984) — — — 3,900 87,347 $ — — (6,769) (3,633) — (27,941) — — — (6,769) (1,665) — (36,375) — — (6,764) (4,906) — (48,045) $ (7) — (6,769) (3,633) 679 65,182 25 (25) — (6,769) (1,665) 486 57,234 (10,002) — (6,764) (4,906) 3,900 39,462 $ — 1,940 (10,269) (5,368) (679) 96,303 — — 1,510 (10,320) (2,458) (486) 84,549 — 1,805 (10,479) (7,323) (3,900) 64,652 $ (7) 1,940 (17,038) (9,001) — 161,485 25 (25) 1,510 (17,089) (4,123) — 141,783 (10,002) 1,805 (17,243) (12,229) — 104,114 See accompanying notes to these consolidated financial statements. F-5 Clipper Realty Inc. Consolidated Statements of Cash Flows (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to net cash provided by operating activities: 2020 Year Ended December 31, 2019 2018 $ (12,229) $ (4,123) $ Depreciation Amortization of deferred financing costs Amortization of deferred costs and intangible assets Amortization of above- and below-market leases Loss on modification/extinguishment of debt Gain on involuntary conversion Gain on termination of lease Deferred rent Stock-based compensation Change in fair value of interest rate caps Bad debt expense Changes in operating assets and liabilities: Tenant and other receivables Prepaid expenses, other assets and deferred costs Accounts payable and accrued liabilities Security deposits Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to land, buildings and improvements Insurance proceeds from involuntary conversion Sale and purchase of interest rate caps, net Cash paid in connection with acquisition of real estate Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds and costs from sale of common stock Repurchase of common stock Payments of mortgage notes Proceeds from mortgage notes Dividends and distributions Loan issuance and extinguishment costs Net cash provided by financing activities Net increase in cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash – beginning of period Cash and cash equivalents and restricted cash – end of period Cash and cash equivalents and restricted cash – beginning of period: Cash and cash equivalents Restricted cash Total cash and cash equivalents and restricted cash – beginning of period Cash and cash equivalents and restricted cash – end of period: Cash and cash equivalents Restricted cash Total cash and cash equivalents and restricted cash – end of period Supplemental cash flow information: Cash paid for interest, net of capitalized interest of $1,456, $5,687 and $5,531 in 2020, 2019 and 2018, respectively Non-cash interest capitalized to real estate under development Additions to investment in real estate included in accounts payable and accrued liabilities $ $ $ $ $ $ 23,148 1,212 963 (390) 4,228 (85) (838) (1,180) 1,805 — 2,543 (5,358) 3,228 (1,602) (587) 1,132 15,990 (31,811) 111 (14) — (31,714) — (10,002) (249,630) 329,919 (17,243) (5,220) 47,824 32,100 56,932 89,032 $ 42,500 $ 14,432 56,932 $ 72,058 $ 16,974 89,032 $ 39,592 $ 1,060 4,189 18,956 1,687 1,175 (1,180) 2,432 — — 1,211 1,510 — — (607) (1,256) 2,586 933 448 23,772 (43,774) — — (31,129) (74,903) — — (142,638) 226,457 (17,089) (4,531) 62,199 11,068 45,864 56,932 $ 37,028 $ 8,836 45,864 $ 42,500 $ 14,432 56,932 $ 33,956 $ 956 3,891 See accompanying notes to these consolidated financial statements. F-6 (9,001) 16,765 1,289 1,715 (1,917) 8,872 (194) — 1,029 1,940 (208) — 2,989 (2,010) (515) 589 1,019 22,362 (39,877) 226 356 — (39,295) (7) — (615,167) 685,664 (17,038) (12,325) 41,127 24,194 21,670 45,864 7,940 13,730 21,670 37,028 8,836 45,864 31,055 1,295 5,998 Clipper Realty Inc. Notes to Consolidated Financial Statements (In thousands, except for share and per share data and as noted) 1. Organization Clipper Realty Inc. (the “Company” or “We”) was organized in the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company in exchange for Class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a one-for-one basis and are entitled to distributions. On June 27, 2016, the Operating Partnership acquired the Aspen property located at 1955 First Avenue in Manhattan, New York. On February 9, 2017, the Company priced an initial public offering of 6,390,149 primary shares of its common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) at a price of $13.50 per share (the “IPO”). The net proceeds of the IPO were approximately $79,000. We contributed the proceeds of the IPO to the Operating Partnership, in exchange for units in the Operating Partnership. On May 9, 2017, the Company completed the purchase of 107 Columbia Heights (subsequently renovated and rebranded “Clover House”), a 158-unit apartment building located in the Brooklyn Heights neighborhood of Brooklyn, New York. On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in the Upper West Side neighborhood of Manhattan, New York. On November 8, 2019, the Company completed the acquisition of 1010 Pacific Street located in the Prospect Heights neighborhood of Brooklyn, New York; the Company plans to redevelop the property as a 175-unit residential building. As of December 31, 2020, the properties owned by the Company consist of the following (collectively, the “Properties”): • • • • Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 483,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA; Flatbush Gardens in Brooklyn, a 59-building residential housing complex with 2,493 rentable units; 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,000 square feet of GLA; 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 370,000 square feet of GLA (fully remeasured); • Aspen in Manhattan, a 7-story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA; • • Clover House in Brooklyn, a 11-story residential building with approximately 102,000 square feet of residential rental GLA; 10 West 65th Street in Manhattan, a 6-story residential building with approximately 76,000 square feet of residential rental GLA; and F- 7 • 1010 Pacific Street in Brooklyn, which the Company plans to redevelop as a 9-story residential building with approximately 119,000 square feet of residential rental GLA. Square footage, leased occupancy percentage and rentable unit disclosures in the consolidated financial statements are unaudited. During 2019, we entered into a joint venture in which we own a 50% interest through which we are paying certain legal and advisory expenses in connection with various rent laws and ordinances which govern certain of our properties. During the years ended December 31, 2020 and 2019, the Company incurred $0.5 million and $0.3 million, respectively, of such expenses, which are recorded as part of general and administrative in the Consolidated Statements of Operations, and the Company has fulfilled its commitment to the joint venture. The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code (the “Code”). The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor. At December 31, 2020, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to 37.9% of the aggregate cash distributions from, and the profits and losses of, the LLCs. The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities. 2. Issuance/Repurchase of Common Stock On April 9, 2019, the Company issued 1,917 primary shares of its common stock to one of its directors, in connection with the conversion of vested long-term incentive plan (“LTIP”) units on a one-for-one basis. The Company did not receive any proceeds from the issuance. In August 2020, the Company’s board of directors (the “Board”) adopted a stock repurchase program to permit the repurchase of up to an aggregate of $10.0 million in outstanding shares of the Company’s common stock. Under the repurchase program, the Company was permitted to repurchase its common stock at any time, or from time to time. The Company anticipated funding for the program to come from available sources of liquidity, including cash on hand and future cash flow. The repurchase program permitted shares to be repurchased in open market or private transactions, through block trades or otherwise. The number of shares repurchased and the timing, manner, price and amount of any repurchases was to be determined at the Company’s discretion, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses of capital and the Company’s financial performance. The repurchase program was permitted to be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity and other factors deemed appropriate by the Company. These factors could also affect the timing and amount of share repurchases. The repurchase program did not obligate the Company to repurchase any particular number of shares. On November 24, 2020, the Company completed the stock repurchase program. During the year ended December 31, 2020, the Company repurchased 1,751,444 shares of common stock under the repurchase program for a total purchase price of approximately $10.0 million. 3. Significant Accounting Policies Segments At December 31, 2020, the Company had two reportable operating segments, Residential Rental Properties and Commercial Rental Properties. The Company’s chief operating decision maker may review operational and financial data on a property basis. Basis of Consolidation The accompanying consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interests. F- 8 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. Investment in Real Estate Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy. In accordance with ASU 2017-01, "Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business: • • Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction). An acquired process is considered substantive if: • • • The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process; The process cannot be replaced without significant cost, effort or delay; or The process is considered unique or scarce. Generally, the Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses. F- 9 The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write- down in calculating gain/loss on disposal of assets. Management of the Company does not believe that any of its properties within the portfolio are impaired as of December 31, 2020. For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held-for-sale. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Building and improvements Tenant improvements Furniture, fixtures and equipment Years 10 – 44 Shorter of useful life or lease term 3 – 15 The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below- market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases. Cash and Cash Equivalents Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts. Restricted Cash Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs, capital improvements, loan reserves and security deposits. Tenant and Other Receivables and Allowance for Doubtful Accounts Tenant and other receivables are comprised of amounts due for monthly rents and other charges less allowance for doubtful accounts. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods. F- 10 Deferred Costs Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated. Comprehensive Income (Loss) Comprehensive income (loss) is comprised of net income (loss) adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the years ended December 31, 2020, 2019 and 2018, the Company did not own any financial instruments for which the change in value was not reported in net income (loss); accordingly, its comprehensive income (loss) was its net income (loss) as presented in the consolidated statements of operations. Revenue Recognition Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered into by residents for apartment units are generally for one-year terms, renewable upon consent of both parties on an annual or monthly basis. Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs and are recorded as part of commercial rental income in the condensed consolidated statements of operations. Stock-based Compensation The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated statements of operations over their vesting period based on the fair value at the date of grant. In the event of a forfeiture, the previously recognized expense would be reversed. The following is a summary of awards granted to the Company’s employees and non-employee directors during the years ended December 31, 2020, 2019 and 2018. Unvested LTIP Units Unvested at December 31, 2017 Granted Vested Forfeited Unvested at December 31, 2018 Granted Vested Forfeited Unvested at December 31, 2019 Granted Vested Forfeited Unvested at December 31, 2020 LTIP Units Weighted Grant-Date Fair Value 621,482 $ 71,112 $ (509,818) $ — 182,776 $ 158,534 $ (124,772) $ — 216,538 $ 529,304 $ (79,766) $ — 666,076 $ 12.93 9.00 13.11 — 10.89 13.33 11.82 — 12.15 5.25 7.50 — 7.22 F- 11 As of December 31, 2020 and 2019, there was $2.4 million and $1.4 million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of December 31, 2020, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately one year. In April 2020, the Company granted employees and non-employee directors 308,935 and 141,688 LTIP units, respectively, with a weighted-average grant date fair value of $4.75 per unit. In June 2020, the Company granted employees and a non-employee director 56,181 and 22,500 LTIP units, respectively, with a weighted-average grant date fair value of $8.10 per unit. In March 2019, the Company granted non-employee directors 45,039 LTIP units with a weighted-average grant date fair value of $13.35 per unit. Income Taxes The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the Code. To qualify as a REIT, the Company is required to distribute dividends equal to at least 90% of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally not subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company may not be able to re-elect as a REIT for the four subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly, no provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements. On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability for taxpayers to use net operating losses. While we do not expect these provisions to have a material impact on the Company’s taxable income or tax liabilities, we continue to analyze the provisions of the CARES Act and related guidance as it is published. In accordance with FASB ASC Topic 740, the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on its financial position or results of operations. The prior three years’ income tax returns are subject to review by the Internal Revenue Service. The Company has determined that the cash distributed to its stockholders is characterized as follows for Federal income tax purposes: Ordinary income Capital gain Return of capital Total 2020 Year Ended December 31, 2019 2018 — — 100% 100% — — 100% 100% — — 100% 100% F- 12 Fair Value Measurements Refer to Note 9, “Fair Value of Financial Instruments”. Derivative Financial Instruments FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (loss) (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value would be recognized in earnings. As of December 31, 2020, the Company has no derivatives for which it applies hedge accounting. L oss Per Share Basic and diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding. As of December 31, 2020, 2019 and 2018, the Company had unvested LTIP units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP units are considered participating securities and are included in the computation of basic and diluted net loss per share pursuant to the two-class method. The Company did not have dilutive securities as of December 31, 2020, 2019 or 2018. The effect of the conversion of the 26,317 Class B LLC units outstanding is not reflected in the computation of basic and diluted net loss per share, as the effect would be anti- dilutive. The net loss allocable to such units is reflected as non-controlling interests in the accompanying consolidated financial statements. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated: (in thousands, except per share amounts) Numerator Net loss attributable to common stockholders Less: income attributable to participating securities Subtotal Denominator Weighted-average common shares outstanding Basic and diluted net loss per share attributable to common stockholders Recently Issued Pronouncements 2020 Year Ended December 31, 2019 2018 $ $ (4,906) $ (478) (5,384) 17,629 (0.31) $ (1,665) $ (319) (1,984) 17,814 (0.11) $ (3,633) (269) (3,902) 17,813 (0.22) In April 2020, FASB issued a Staff Q & A to provide interpretive guidance for lease concessions related to the effects of the COVID-19 pandemic. The Company did not provide any material concessions to its tenants as a result of COVID-19 during the year ended December 31, 2020; therefore, this guidance did not have a material effect on its consolidated financial statements. The Company continues to evaluate the effect that this guidance may have on its consolidated financial statements. F- 13 In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848). ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective beginning on March 12, 2020, and may be applied prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 prospectively as and when we enter into transactions to which this guidance applies. In March 2019, FASB issued ASU 2019-01, “Leases (Topic 842), Codification Improvements.” There are three codification updates to Topic 842 covered by this ASU: Issue 1 provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers; Issue 2 relates to cash flow presentation for lessors of sales- type and direct financing leases; and Issue 3 clarifies that certain transition disclosures will only be required in annual disclosures. The Company does not expect the adoption of ASU 2019-01 to have a material impact on its consolidated financial statements. In December 2018, FASB issued ASU 2018-20, “Leases (Topic 842), Narrow-Scope Improvements for Lessors.” This ASU modifies ASU 2016-02 to permit lessors, as an accounting policy election, not to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Consequently, a lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures (includes sales, use, value-added, and some excise taxes and excludes real estate taxes). The Company has elected not to evaluate whether the aforementioned costs are lessor or lessee costs. This ASU also provides that certain lessor costs require lessors to exclude from variable payments, and therefore revenue, specifically lessor costs paid by lessees directly to third parties. The amendments also require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments. A lessor will record those reimbursed costs as revenue. The Company does not expect the adoption of ASU 2018-20 to have a material impact on its consolidated financial statements. In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which prescribes a single, common revenue standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP, including most industry-specific requirements. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 outlines a five-step model to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The Company’s revenues are primarily derived from rental income, which is scoped out from this standard and is currently accounted for in accordance with ASC Topic 840, Leases. Less than 2% of the Company’s revenues in 2018 would have fallen under the scope of this standard and comprises, principally, garage and other income from residential tenants; for these revenues, the Company adopted this standard effective January 1, 2019, using the modified retrospective approach, applying the provisions to open contracts as of the date of adoption. The adoption of this standard did not have a material impact on the timing or amounts of the Company’s revenues. The Company’s disaggregated revenue streams, including the approximate 2% of rental revenue that is subject to this revenue recognition standard, are disclosed in the tables below for the years ended December 31, 2020, 2019 and 2018: Year Ended December 31, 2020 Amount of Rental Income Revenue Stream Applicable Standard Residential Commercial Total % of Rental Income Leasing Operating expense recoveries Other Total revenues Leases Leases Revenue Recognition $ $ 88,763 $ 519 1,261 90,543 $ 28,087 $ 3,638 582 32,307 $ 116,850 4,157 1,843 122,850 95.1% 3.4% 1.5% 100.0% Revenue Stream Applicable Standard Residential Commercial Total % of Rental Income Year Ended December 31, 2019 Amount of Rental Income Leasing Operating expense recoveries Other Total revenues Leases Leases Revenue Recognition $ $ F- 14 85,751 $ 521 1,114 87,386 $ 24,941 $ 3,211 627 28,779 $ 110,692 3,732 1,741 116,165 95.3% 3.2% 1.5% 100.0% Year Ended December 31, 2018 Amount of Rental Income Revenue Stream Applicable Standard Residential Commercial Total % of Rental Income Leasing Operating expense recoveries Other Total revenues Leases Leases Revenue Recognition $ $ 79,366 $ 523 1,228 81,117 $ 25,322 $ 2,888 670 28,880 $ 104,688 3,411 1,898 109,997 95.2% 3.1% 1.7% 100.0% In February 2016, FASB issued ASU 2016-02, “Leases.” ASU 2016-02 supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, requires lessees to recognize most leases on their balance sheets and makes targeted changes to lessor accounting. In July 2018, FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which provides minor clarifications and corrections to ASU 2016-02, “Leases (Topic 842).” Further, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” This amendment provides a new practical expedient that allows lessors, by class of underlying asset, to avoid separating lease and associated non-lease components within a contract if certain criteria are met: (i) the timing and pattern of transfer for the non-lease component and the associated lease component are the same and (ii) the stand-alone lease component would be classified as an operating lease if accounted for separately. These pronouncements are effective for fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company will adopt this standard effective January 1, 2022 and is currently evaluating the impact of adoption on its consolidated financial statements. As lessor, the Company expects that the adoption of ASU 2016-02 (as amended by subsequent ASUs) will not change the timing of revenue recognition of the Company’s rental revenues. For lease payments deemed uncollectible, the Company will record bad debt expense as a reduction of revenue. As lessee, the Company is party to certain office equipment leases with future payment obligations for which the Company expects to record right-of-use assets and lease liabilities at the present value of the remaining minimum rental payments upon adoption of this standard. In August 2018, FASB issued ASU 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance is effective in fiscal years beginning after December 15, 2019 with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s financial statement reporting. 4. Acquisitions On November 8, 2019, the Company acquired the 1010 Pacific Street property, a parcel of land, for $31,129, including acquisition costs of $129; this property is reflected in real estate under development within the investment in real estate in the accompanying consolidated balance sheet. 5. Deferred Costs and Intangible Assets Deferred costs and intangible assets consist of the following: Deferred costs Above-market leases Lease origination costs In-place leases Real estate tax abatements Total deferred costs and intangible assets Less accumulated amortization Total deferred costs and intangible assets, net F- 15 December 31, 2020 December 31, 2019 $ $ 348 $ — 1,078 428 9,142 10,996 (3,276) 7,720 $ 348 444 1,385 859 9,142 12,178 (3,396) 8,782 Amortization of deferred costs, lease origination costs and in-place lease intangible assets was $482, $693 and $1,240 for the years ended December 31, 2020, 2019 and 2018, respectively; $849 and $8,994 of amortized deferred costs, lease origination costs and in-place leases were written off during the years ended December 31, 2020 and 2019, respectively. Additionally, $180 of unamortized lease origination costs and in-place leases was written off during the year ended December 31, 2020, due to the termination of a commercial lease and is included in gain on termination of lease in the consolidated statements of operations. Amortization of real estate tax abatements of $481, $482 and $475 for the years ended December 31, 2020, 2019 and 2018, respectively, is included in real estate taxes and insurance in the consolidated statements of operations; $3,428 of fully amortized real estate tax abatements was written off during the year ended December 31, 2019. Amortization of above-market leases of $30, $118 and $235 for the years ended December 31, 2020, 2019 and 2018, respectively, is included in commercial rental income in the consolidated statements of operations; $444 and $36 of fully amortized above-market leases was written off during the years ended December 31, 2020 and 2019, respectively. Deferred costs and intangible assets as of December 31, 2020, amortize in future years as follows: 2021 2022 2023 2024 2025 Thereafter Total 6. Below-Market Leases, Net The Company’s below-market lease intangibles liabilities are as follows: Below-market leases Less accumulated amortization Below-market leases, net $ $ 697 668 559 544 540 4,712 7,720 December 31, 2020 December 31, 2019 $ $ 785 $ (628) 157 $ 4,087 (2,462) 1,625 Rental income included amortization of below-market leases of $420, $1,298 and $2,152 for the years ended December 31, 2020, 2019 and 2018, respectively; $2,254 and $19,091 of fully amortized below-market leases was written off during the years ended December 31, 2020 and 2019, respectively. Additionally, $1,048 of unamortized below-market leases was written off during the year ended December 31, 2020, due to the termination of a commercial lease and is included in gain on termination of lease in the consolidated statements of operations. Below-market leases as of December 31, 2020, amortize in future years as follows: 2021 2022 2023 Total F- 16 $ $ 104 35 18 157 7. Notes Payable The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows: Property Flatbush Gardens, Brooklyn, NY (a) Flatbush Gardens, Brooklyn, NY (a) 250 Livingston Street, Brooklyn, NY (b) 141 Livingston Street, Brooklyn, NY (c) Tribeca House, Manhattan, NY (d) Aspen, Manhattan, NY (e) Clover House, Brooklyn, NY (f) 10 West 65th Street, Manhattan, NY (g) 1010 Pacific Street, Brooklyn, NY (h) Total debt Unamortized debt issuance costs Total debt, net of unamortized debt issuance costs Maturity Interest Rate December 31, 2020 December 31, 2019 6/1/2032 3/1/2028 6/6/2029 6/1/2028 3/6/2028 7/1/2028 12/1/2029 11/1/2027 6/24/2021 $ 3.125% 3.50% 3.63% 3.875% 4.506% 3.68% 3.53% 3.375% LIBOR + 3.60% $ $ 329,000 $ — 125,000 74,241 360,000 65,485 82,000 33,619 20,375 1,089,720 $ (10,262) 1,079,458 $ — 246,000 125,000 75,817 360,000 66,862 82,000 34,295 19,457 1,009,431 (11,528) 997,903 (a) On May 8, 2020, the Company refinanced the $246,000 mortgage note with a $329,000, twelve-year secured first mortgage note with New York Community Bank (“NYCB”). The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined. (b) The $125,000 mortgage note agreement with Citi Real Estate Funding Inc., entered into on May 31, 2019, matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium. (c) The $79,500 mortgage note agreement with NYCB matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of $374 thereafter based on a 30-year amortization schedule. On February 18, 2021, the Company refinanced the above 141 Livingston Street loan with a $100,000, ten-year secured first mortgage note with Citi Real Estate Funding Inc. The note matures on March 6, 2031, bears interest at 3.21% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium. (d) The $360,000 loan with Deutsche Bank, entered into on February 21, 2018, matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027. (e) The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule. The Company has the option to prepay the note prior to the maturity date, subject to a prepayment premium. (f) The $82,000 mortgage note agreement with MetLife Investment Management, entered into on November 8, 2019, matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. The Company has the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029. (g) On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through November 2019, and monthly principal and interest payments of $152 thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined. F- 17 (h) On December 24, 2019, the Company entered into a $18,600 mortgage note agreement with CIT Bank, N.A., related to the 1010 Pacific Street acquisition. The Company also entered into a pre-development bridge loan secured by the property with the same lender that will provide up to $2,987 for eligible pre-development and carrying costs, of which $1,775 was drawn as of December 31, 2020. The notes mature on June 24, 2021, require interest-only payments and bear interest at one-month LIBOR (with a floor of 1.25%) plus 3.60% (4.85% as of December 31, 2020). The Company has guaranteed this mortgage note and has complied with the financial covenants therein. The Company currently intends to refinance the notes with a construction loan prior to maturity, although there are no assurances that the Company will be able to do so. The Company has provided a limited guaranty for the mortgage notes at several of its properties. The Company’s loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and debt yield ratios. In the event that they are not compliant, certain lenders may require cash sweeps of rent until the conditions are cured. The Company is not in default on any of its loan agreements The following table summarizes principal payment requirements under the terms of the mortgage notes as of December 31, 2020: 2021 2022 2023 2024 2025 Thereafter Total $ $ 24,150 3,918 4,066 4,214 4,380 1,048,992 1,089,720 The Company recognized a loss on modification of debt of $4,228 during the year ended December 31, 2020, in connection with the refinancing of debt on the Flatbush Gardens property in May 2020; the loss consisted of the write-off of unamortized debt costs and other fees. The Company recognized a loss on extinguishment of debt of $2,432 during the year ended December 31, 2019, in connection with the refinancing of debt on the 250 Livingston Street property in May 2019 and the refinancing of debt on the Clover House property in November 2019; the loss consisted of the write-off of unamortized debt costs and other fees. The Company recognized a loss on extinguishment of debt of $8,872 during the year ended December 31, 2018, in connection with the refinancing of debt on the Flatbush Gardens and Tribeca House properties in February 2018 and the refinancing of debt on the 250 Livingston Street property in December 2018; the loss consisted of the write-off of unamortized debt costs, prepayment and other fees and defeasance costs. 8. Rental Income under Operating Leases The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of December 31, 2020, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows: 2021 2022 2023 2024 2025 Thereafter Total $ $ 29,646 30,183 28,945 28,564 22,956 11,638 151,932 The Company has commercial leases with the City of New York that comprised approximately 21%, 19% and 19% of total revenues for the years ended December 31, 2020, 2019 and 2018, respectively. F- 18 9. Fair Value of Financial Instruments GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying ‐‐‐value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories: • • • Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable. When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument. The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, security deposits and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, and security deposits reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates. The carrying amount and estimated fair value of the notes payable are as follows: Carrying amount (excluding unamortized debt issuance costs) Estimated fair value December 31, 2020 December 31, 2019 $ $ 1,089,720 $ 1,204,201 $ 1,009,431 1,058,083 The Company purchased interest rate caps in connection with the Tribeca House loans obtained on November 9, 2016, the loans obtained for the Clover House acquisition, the 250 Livingston Street loan obtained on December 6, 2018, and the 1010 Pacific Street loans obtained on December 24, 2019. On April 27, 2018, the Company terminated the Tribeca House instrument for net proceeds of $385. During December 2020, the interest rate caps at the 250 Livingston Street property and the 1010 Pacific Street property matured with no residual value. The fair value of the interest rate caps, which are classified as Level 2, is estimated using market inputs and credit valuation inputs. These interest rate caps were not designated as hedges. Accordingly, changes in fair value of the 250 Livingston Street and Tribeca House instruments were recognized in earnings. Changes in fair value of the Clover House instrument which matured and was written off in May 2020, were recognized in real estate under development during construction and are recognized in earnings following completion of development. Changes in fair value of the 1010 Pacific Street instrument were recognized in real estate under development. Increases in the fair value of the Tribeca House instrument in the amount of $237 prior to the termination of the instrument in 2018 were included in interest expense. Decreases in the fair value of the 250 Livingston Street instrument in the amount of $0, $0, and $29 for the years ended December 31, 2020, 2019 and 2018 respectively are included in interest expense. The fair value of the Clover House instrument did not change during each of the year ended December 31, 2020; decreases in the fair value of the Clover House instrument of $24 and $10 for the years ended December 31, 2019 and 2018, respectively, are recognized in interest expense and capitalized to real estate under development. Decrease in fair value of the 1010 Pacific Street instrument of $14 for the year ended December 31, 2020, is capitalized to real estate under development. F- 19 The above disclosures regarding fair value of financial instruments are based on pertinent information available as of December 31, 2020, 2019 and 2018, respectively. Although the Company is not aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such ‐amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from the amounts presented herein. 10. Commitments and Contingencies Legal On July 3, 2017, the Supreme Court of the State of New York (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York (the Tribeca House property), who brought an action (the “Kuzmich” case) against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”) 421-g. The Court also awarded the plaintiffs-tenants their attorney’s fees and costs. The Court declared that the plaintiffs-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On July 18, 2017, the Court, pursuant to the parties’ agreement, stayed the Court’s ruling; the Company subsequently appealed the decision to the Appellate Division, First Department. On January 18, 2018, the Appellate Division unanimously reversed the Court’s ruling and ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The plaintiffs-tenants thereafter moved for leave to appeal to the Court of Appeals, which motion was granted on April 24, 2018. On June 25, 2019, the New York Court of Appeals reversed the Appellate Division’s order and ruled in favor of the plaintiffs-tenants, holding that apartments in buildings receiving RPTL 421-g tax benefits are not subject to luxury deregulation. The Court of Appeals also remitted the matter for further proceedings consistent with its opinion. As a result of the Court of Appeals’ order, Company management believes that payments may be required to be made to the 41 present or former tenants comprising the plaintiff group, that other tenants may attempt to make similar claims, and that the special referee process referred to above will be used to determine the timing and the amount of any claims that must be paid. On July 25, 2019, the Company filed a motion for reargument with the New York Court of Appeals, which was denied on September 12, 2019. On October 24, 2019, the Company filed a Petition for a Writ of Certiorari with the United States Supreme Court, seeking permission to have that Court hear the Company’s appeal on Constitutional grounds from the Court of Appeals’ order. On January 13, 2020, the United States Supreme Court denied the Company’s Petition for a Writ of Certiorari, meaning that the Court of Appeals’ order is final. On August 13, 2019, the Court, in effect, reinstated its prior order and referred the calculation of rent overcharges and attorneys’ fees for a hearing before a special referee. The special referee’s hearing was scheduled for October 23, 2019. On October 17, 2019, the Company made a motion in the Appellate Division for a stay of the special referee’s hearing pending the Company’s appeal from the August 13 order. On such date, the Appellate Division granted an interim stay of the special referee’s hearing, pending the determination of the underlying motion. On January 7, 2020, the Appellate Division granted the Company’s motion for a full stay of the special referee’s hearing pending appeal. The appeal had been scheduled to be argued during the May 2020 term, but on March 16, 2020, the parties filed a stipulation adjourning the appeal to the September 2020 term. On or about July 13, 2020, the parties filed another stipulation adjourning the appeal to the October 2020 term. The appeal was orally argued on October 8, 2020. On October 29, 2020, the Appellate Division reversed the lower court’s ruling to the extent that it directed any rent overcharges to be calculated pursuant to the so-called “default formula.” Instead, the Appellate Division held that (1) the “base date” for the determination of rent overcharges is four years prior to the 2016 filing of the complaint, and (2) overcharges, if any, are to be determined by comparing the rents actually charged during the four-year period to the rent increases permitted by the New York City Rent Guidelines Board. Although not eliminating rent overcharge liability altogether, this ruling is expected to limit the Company’s financial exposure in this regard. The Appellate Division, however, affirmed the lower court’s award of attorneys’ fees to the plaintiffs-tenants. The case will eventually be remanded back to the lower court, which will determine the exact amount of the Company’s liability for rent overcharges and attorneys’ fees; no future court dates have been scheduled as of yet. On November 18, 2019, the same law firm which filed the Kuzmich case filed a second action involving a separate group of 26 tenants (captioned Crowe et al v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 161227/19), which action advances the same claims as in Kuzmich. The Company’s deadline to answer or otherwise respond to the complaint in Crowe had been extended to June 30, 2020; on such date, the Company filed its answer to the complaint. Pursuant to the court’s rules, on July 16, 2020, the plaintiffs filed an amended complaint; the sole difference as compared to the initial complaint is that seven new plaintiffs-tenants were added to the caption; there were no substantive changes to the complaint’s allegations. On August 5, 2020, the Company filed its answer to the amended complaint. The Company cannot predict what the timing or ultimate resolution of these matters will be, and accordingly, at this time, the Company has not recorded any liability for the potential settlement of these matters. F- 20 In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of 1990 at the 141 Livingston Street property, which was settled in November 2020. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows. Commitments The Company is obligated to provide parking availability through August 2025 under a lease with a tenant at the 250 Livingston Street property; the current cost to the Company is approximately $205 per year. Contingencies The COVID-19 pandemic has adversely impacted global economic activity and contributed to significant volatility in financial markets. The COVID-19 pandemic and associated government actions intended to curb its spread are creating disruptions in, and adversely impacting, many industries and have negatively impacted, and could continue to negatively impact, the Company’s business in a number of ways, including affecting its tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. The Tribeca House property has experienced declines in leased occupancy and residential rental rate as a result of the COVID-19 pandemic; several of our other properties experienced smaller declines in leased occupancy as well. Certain of the Company’s commercial tenants have requested rent deferrals during the pandemic (the total deferred amount at December 31, 2020, was $0.9 million); such deferrals are recorded in line with the leasing standard under ASC 840. In some cases, the Company may restructure rent and other obligations under its leases with its tenants on terms that are less favorable to it than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions which may ultimately result in a further decrease in occupancy levels and rental rates across the Company’s portfolio as residents reduce their spending and replacement tenants become harder to find. The rapid development and fluidity with which the situation continues to develop precludes any prediction as to the ultimate material adverse impact of the COVID-19 pandemic. Nevertheless, COVID-19 presents uncertainty and risk with respect to the Company’s tenants, which could adversely affect the Company’s financial performance. The Company’s properties have remained open and operational throughout the pandemic. The Company is taking the necessary steps to keep employees and tenants safe in compliance with state and local orders, and continues to provide typical services to its residents. Concentrations The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio. F- 21 The breakdown between commercial and residential revenue is as follows: Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 11. Related-Party Transactions Commercial Residential Total 26% 25% 26% 74% 75% 74% 100% 100% 100% The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of $266, $148 and $349 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company recognized reimbursable payroll expense pertaining to a related company in general and administrative expense of $75, $79 and $26 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company paid legal and advisory fees to firms in which two of our directors were principals or partners of $5, $428 and $2,014 for the years ended December 31, 2020, 2019 and 2018, respectively. In November 2020, the Company repurchased approximately 1.67 million shares of common stock from Indaba Capital Management, L.P., which owned greater than 5% of the Company’s outstanding shares prior to the transaction, for a total purchase price of approximately $9,507. 12. Segment Reporting The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the Clover House property, the 10 West 65th Street property, the 1010 Pacific Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties. The Company’s income from operations by segment for the years ended December 31, 2020, 2019 and 2018, is as follows: Year ended December 31, 2020 Rental income Total revenues Property operating expenses Real estate taxes and insurance General and administrative Depreciation and amortization Total operating expenses Gain on termination of lease Income from operations Year ended December 31, 2019 Rental income Total revenues Property operating expenses Real estate taxes and insurance General and administrative Depreciation and amortization Total operating expenses Income from operations Commercial Residential Total 32,307 $ 32,307 4,209 6,704 1,365 4,463 16,741 838 16,404 $ 90,543 $ 90,543 25,693 21,582 8,363 19,167 74,805 — 15,738 $ Commercial Residential Total 28,779 $ 28,779 4,354 5,465 1,355 3,905 15,079 13,700 $ 87,386 $ 87,386 24,533 19,501 7,812 15,744 67,590 19,796 $ 122,850 122,850 29,902 28,286 9,728 23,630 91,546 838 32,142 116,165 116,165 28,887 24,966 9,167 19,649 82,669 33,496 $ $ $ $ F- 22 Year ended December 31, 2018 Rental income Total revenues Property operating expenses Real estate taxes and insurance General and administrative Acquisition and other Depreciation and amortization Total operating expenses Income from operations The Company’s total assets by segment are as follows, as of: December 31, 2020 December 31, 2019 December 31, 2018 $ $ $ Commercial Residential Total 28,880 $ 28,880 4,312 4,687 1,078 — 3,642 13,719 15,161 $ 81,117 $ 81,117 22,955 17,606 8,795 101 14,363 63,820 17,297 $ 109,997 109,997 27,267 22,293 9,873 101 18,005 77,539 32,458 Commercial Residential Total 282,789 $ 285,103 245,940 925,077 $ 881,104 855,068 1,207,866 1,166,207 1,101,008 The Company’s interest expense by segment for the years ended December 31, 2020, 2019 and 2018, is as follows: Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Commercial Residential Total $ 8,167 $ 7,241 6,987 32,061 $ 27,946 25,794 The Company’s capital expenditures by segment for the years ended December 31, 2020, 2019 and 2018, are as follows: Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 13. Multiemployer Union Agreement and Pension Plan Commercial Residential Total $ 8,915 $ 6,038 2,460 24,254 $ 36,585 43,182 40,228 35,187 32,781 33,169 42,623 45,642 Certain of the Company’s employees are covered by union-sponsored, collectively bargained, multiemployer defined benefit pension and profit-sharing plans, and health insurance, legal and training plans. Contributions to the plans are determined in accordance with the provisions of the negotiated labor contract. The Local 94 International Union of Operating Engineers (“Local 94”) contract is in effect through December 31, 2022. The Local 32BJ Service Employees International Union (“Local 32BJ”) apartment building contract is in effect through April 20, 2022. The Local 32BJ Service Employees International Union commercial building contract is in effect through December 31, 2023. Contributions to the unions are not segregated or otherwise restricted to provide benefits only to the Company’s employees. The risks of participating in a multiemployer pension plan differ from those of a single-employer pension plan in the following aspects: (a) assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers; and (c) if the Company chooses to stop participating in the multiemployer plan, it may be required to pay the plan an amount based on the unfunded status of the plan, which is referred to as the withdrawal liability. The Company has no intention of withdrawing from the plans. F- 23 The information for the union’s multiemployer pension plans are as follows: Legal name Employer identification number Plan number Type of plan Plan year-end date Certified Zone Status for 2020, 2019 and 2018* Funding improvement plan/rehabilitation plan* Surcharges paid to plan Building Service 32BJ Pension Fund 13-1879376 001 Defined benefit pension plan June 30 Red Implemented None Pension contribution made for 2020, 2019 and 2018, respectively Minimum weekly required pension contribution per employee for 2020, 2019 and 2018, respectively (in dollars) $362, $325 $118.09, $114.11 and and $337 $109.11 Legal name Employer identification number Plan number Type of plan Plan year-end date Certified Zone Status for 2020, 2019 and 2018* Funding improvement plan/rehabilitation plan* Surcharges paid to plan Central Pension Fund of the International Union of Operating Engineers and Participating Employers 36-6052390 001 Defined benefit pension plan January 31 Green N/A N/A Pension contribution made for 2020, 2019 and 2018, respectively Minimum weekly required pension contribution per employee for 2020, 2019 and 2018, respectively (in dollars) $39, $39 $187.88, $187.43 and and $38 $182.55 * Certified pension zone status (as defined by the Pension Protection Act) represents the level at which the pension plan is funded. Plans in the red zone are less than 65% funded; plans in the yellow zone are less than 80% funded; and plans in the green zone are at least 80% funded. The rehabilitation plan may involve a surcharge on employers or a reduction or elimination of certain employee adjustable benefits. The information provided above is from the respective pension plan’s most current annual report, which for Local 32BJ is for the year ended June 30, 2020 and for Local 94 is for the year ended January 31, 2020. The Pension Protection Act Zone Status, the most recent zone status available, was provided to the Company by the respective plans and the Local 32BJ status is certified by the plan’s actuary. The Company’s contributions to the pension plans are less than 5% of all the employers’ contributions to the plans. F- 24 14. Restatement of Previously Issued Interim Consolidated Financial Statements (Unaudited) As previously disclosed, the Company concluded that the previously issued unaudited consolidated financial statements covering each of the Company’s first three quarters of 2020 (collectively, the “Restated Periods”), require restatement and should no longer be relied upon. These unaudited consolidated financial statements contained a non-cash error by failing to take into account on a straight-line basis, rent increases that would become due under a commercial lease at the Company’s 141 Livingston Street property in the future years 2021-2025 once the lessee determined not to exercise its contractual right to terminate the lease as of year-end 2020. The Company previously disclosed on October 17, 2019, that the lessee confirmed that it will continue its commercial lease at the 141 Livingston Street property through expiration at the end of 2025. In addition, the unaudited consolidated financial statements for the second quarter of 2020 contained an immaterial uncorrected misstatement related to a non-cash accrual for a contingent liability related to an outstanding legal case of approximately $0.1 million; the amount was previously recorded in the third quarter of 2020. Adjustment of the Company’s consolidated statements of operations for the Restated Periods to correct the items above (the “Adjustments”) resulted in the following amounts (in thousands, except per share data): As Reported Adjustment Restated As Reported Adjustment Restated As Reported Adjustment Restated As Reported Adjustment Restated Revenues Q1 2020 Q2 2020 Six Months Ended 6/30/2020 Q3 2020 Nine Months Ended 9/30/2020 30,886 $ 429 $ 31,315 $ 30,729 $ 429 $ 31,158 $ 61,615 $ 858 $ 62,473 $ 29,611 $ 429 $ 30,040 $ 91,226 1,287 92,513 Income from Operations Q1 2020 Q2 2020 Six Months Ended 6/30/2020 Q3 2020 Nine Months Ended 9/30/2020 8,982 $ 429 $ 9,411 $ 8,617 $ 319 $ 8,936 $ 17,599 $ 748 $ 18,347 $ 6,778 $ 539 $ 7,317 $ 24,377 1,287 25,664 Net Income / (Loss) Q1 2020 Q2 2020 Six Months Ended 6/30/2020 Q3 2020 Nine Months Ended 9/30/2020 (806) $ 429 $ (377) $ (5,505) $ 319 $ (5,186) $ (6,311) $ 748 $ (5,563) $ (3,429) $ 539 $ (2,890) $ (9,740) 1,287 (8,453) $ $ $ $ $ $ $ $ $ Diluted Earnings (Loss) Per Share * Q1 2020 Q2 2020 Six Months Ended 6/30/2020 Q3 2020 Nine Months Ended 9/30/2020 $ $ $ (0.02) $ 0.01 $ (0.01) $ (0.13) $ 0.01 $ (0.12) $ (0.15) $ 0.02 $ (0.13) $ (0.09) $ 0.01 $ (0.08) $ (0.24) 0.03 (0.21) * Quarterly As Reported plus Adjustment amounts are rounded separately to the nearest cent, and as a result the sum of these amounts may not equal the Restated amount. F- 25 15. Selected Interim Financial Data (unaudited) The following is a summary of the unaudited quarterly financial information for the years ended December 31, 2020 and 2019; adjustment and restated figures for the first three quarters of 2020 are presented in accordance with the restatement noted in Note 14 (in thousands, except per share data): 2020 Revenues Adjustment Restated Income from operations Adjustment Restated Net loss Adjustment Restated Net loss attributable to common stockholders Adjustment Restated Basic and diluted net loss per share Adjustment Restated 2019 Revenues Income from operations Net loss Net loss attributable to common stockholders Basic and diluted net loss per share First Quarter Second Quarter Third Quarter Fourth Quarter 30,886 $ 429 $ 31,315 $ 8,982 $ 429 $ 9,411 $ (806) $ 429 $ (377) $ (326) $ 174 $ (152) $ (0.02) $ 0.01 $ (0.01) $ 30,729 $ 429 $ 31,158 $ 8,617 $ 319 $ 8,936 $ (5,505) $ 319 $ (5,186) $ (2,222) $ 128 $ (2,094) $ (0.13) $ 0.01 $ (0.12) $ 29,611 $ 429 30,040 6,778 $ 539 7,317 (3,429) $ 539 (2,890) (1,384) $ 217 (1,167) (0.09) $ 0.01 (0.08) 30,337 NA NA 6,478 NA NA (3,776) NA NA (1,493) NA NA (0.10) NA NA First Quarter Second Quarter Third Quarter Fourth Quarter 27,652 $ 8,141 $ (133) $ (54) $ (0.01) $ 28,446 $ 8,823 $ (1,158) $ (467) $ (0.03) $ 29,440 $ 8,510 $ (182) $ (73) $ (0.01) $ 30,627 8,022 (2,650) (1,071) (0.06) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ The sum of the individual quarterly net income (loss) per common share amounts may not agree with year-to-date net income (loss) per common share because each period’s computation is based on the weighted average number of shares outstanding during that period. F- 26 Clipper Realty Inc. and Predecessor Schedule III – Real Estate and Accumulated Depreciation (In thousands) Encumbrances at December 31, 2020 Initial Costs Gross Amounts at Which Carried at December 31, 2020 Encum- brances Land Location Description Manhattan, NYResidential/Commercial Property Tribeca HouseManhattan, NYResidential/Commercial $ 360,000 $ 273,103 $ 283,137 $ Aspen 65,485 49,230 43,080 Flatbush Brooklyn, NY Gardens Clover House Brooklyn, NY 10 West 65th St. 1010 Pacific St. 250 Livingston St.Brooklyn, NY Commercial/Residential 141 Livingston St.Brooklyn, NY 329,000 89,965 49,607 82,000 43,516 44,100 125,000 10,452 20,204 33,619 63,677 15,337 74,241 10,830 12,079 Residential Residential Manhattan, NY Brooklyn, NY Commercial Residential Residential 20,375 — — $ — — — — — 31,129 Building and Improv- ements Real Estate Under Develop. Cost Capitalized Subsequent to Acquisition Building and Improv- ements Land 28,346 $ 273,103 $ 311,483 2,558 49,230 45,638 Real Estate Under Develop. Total — $ 584,586 $ 94,868 — Accumu- lated Deprecia- tion 51,730 Dec-14 5,109 June-16 Date Acquired 54,439 90,051 103,960 58,294 43,516 102,394 — — 194,011 145,910 47,429 Oct-05 3,027 May-17 6,164 63,677 21,501 — 85,178 2,634 Oct-17 4,989 — — 36,118 36,118 — Nov-19 — 20,486 10,452 40,690 — 51,142 14,416 May-02 — $ 1,089,720 $ 540,773 $ 467,544 $ 31,129 $ 8,255 10,830 20,334 — 31,164 8,134 May-02 183,531 $ 540,859 $ 646,000 $ 36,118 $ 1,222,977 $ 132,479 (1) At December 31, 2020, the aggregate cost for Federal tax purposes of our real estate assets was $834,756. (2) The following summarizes activity for real estate and accumulated depreciation, for the years ended December 31, 2020, 2019 and 2018: Investment in real estate: Balance at beginning of period Acquisition of real estate Additions during period Write-off of assets Balance at end of period Accumulated depreciation: Balance at beginning of period Depreciation expense Write-off of assets Balance at end of period 2020 2019 2018 1,189,951 $ — 33,169 (143) 1,222,977 $ 109,418 $ 23,148 (87) 132,479 $ 1,116,199 $ 31,129 42,623 — 1,189,951 $ 90,462 $ 18,956 — 109,418 $ 1,070,606 — 45,642 (49) 1,116,199 73,714 16,765 (17) 90,462 $ $ $ $ F-27 Name of Subsidiary 10 West 65 Owner LLC 50 Murray Mezz LLC 50 Murray Mezz One LLC 50 Murray Mezz Two LLC 50 Murray Street Acquisition LLC 50/53 JV LLC 141 Livingston Owner LLC 250 Livingston Owner LLC 1010 Pacific Owner LLC Aspen 2016 LLC Berkshire Equity LLC Clipper 107 CH LLC Clipper 107 CH Member LLC Clipper 107 CH MT, L.P. Clipper Realty Construction LLC Clipper Realty L.P. Clipper TRS LLC Gunki Holdings LLC Kent Realty, LLC Renaissance Equity Holdings LLC Renaissance Equity Holdings LLC A Renaissance Equity Holdings LLC B Renaissance Equity Holdings LLC C Renaissance Equity Holdings LLC D Renaissance Equity Holdings LLC E Renaissance Equity Holdings LLC F Renaissance Equity Holdings LLC G Subsidiaries of Clipper Realty Inc. Jurisdiction of Incorporation/Formation Exhibit 21.1 New York Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware New York New York New York New York New York New York New York New York New York Consent of Independent Registered Public Accounting Firm Exhibit 23.1 Clipper Realty Inc. New York, New York We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-217191 and 333-239536) of Clipper Realty Inc. of our report dated March 16, 2021, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. /s/ BDO USA, LLP New York, New York March 16, 2021 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.1 I, David Bistricer, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Clipper Realty Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2021 By: /s/ David Bistricer David Bistricer Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.2 I, Michael C. Frenz, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Clipper Realty Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2021 By: /s/ Michael C. Frenz Michael C. Frenz Chief Financial Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with this Annual Report on Form 10-K of Clipper Realty Inc. (the "Company") for the period ended December 31, 2020, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 16, 2021 Signed: /s/ David Bistricer David Bistricer Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 In connection with this Annual Report on Form 10-K of Clipper Realty Inc. (the "Company") for the period ended December 31, 2020, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 16, 2021 Signed: /s/ Michael C. Frenz Michael C. Frenz Chief Financial Officer 

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