Hartman vREIT XXI提交2024财年10-K：净利润204.3万美元，披露内控缺陷及诉讼风险

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒  Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal years ended December 31, 2024 and 2023

or

☐  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 333-207711

Hartman vREIT XXI, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (713) 400-1000

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

Securities registered pursuant to Section 12(g) of the Act:  None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes ☐   No ☒

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   ☐ 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    ☐ 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 the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging Growth Company ☐

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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. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

      There is no established market for the registrant’s common equity. As of December 31, 2024, there were 9,245,987 shares of the registrant’s common stock held by non-affiliates and, as of such date, the most recent sales prices known to the registrant were $9.83 per share of Class A common stock, Class S common stock, Class I common stock, and Class T common stock. As of December 31, 2023, there were 9,245,987 shares of the registrant’s common stock held by non-affiliates and, as of such date, the most recent sales prices known to the registrant were $9.78 per share of Class A common stock, Class S common stock, Class I common stock, and Class T common stock.

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HARTMAN vREIT XXI, INC.

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Explanatory Note

Hartman vREIT XXI, Inc. (the “Company”) did not timely file its Annual Reports on Form 10-K for the fiscal years ended December 31, 2024 and December 31, 2023, nor its Quarterly Reports on Form 10-Q for the interim periods within those fiscal years. These delays were primarily attributable to accounting, audit, and internal control matters, including the identification of material weaknesses in internal control over financial reporting, the complexity of the Company’s real estate and related-party transactions and structures, and changes in external service providers supporting the Company’s financial reporting process.

This Annual Report is being filed as a consolidated report to satisfy the Company’s delinquent reporting obligations under Section 13(a) of the Securities Exchange Act of 1934, as amended, for the fiscal years ended December 31, 2023 and December 31, 2024, and to bring the Company current in its periodic reporting obligations.

The consolidated financial statements included in this Annual Report present the Company’s financial position as of December 31, 2023 and December 31, 2024, and the results of its operations and cash flows for the fiscal years then ended, together with comparative financial information for the fiscal year ended December 31, 2022. The Company previously filed its audited Annual Report on Form 10-K for the fiscal year ended December 31, 2022 on August 22, 2025. The 2022 financial information included herein is presented solely for comparative purposes and has not been re-audited, restated, or amended.

The Company has not filed, and does not intend to file, separate Quarterly Reports on Form 10-Q for the interim periods within fiscal years 2024 and 2023. Management believes that the disclosures included in this Annual Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, include the information and disclosures that would otherwise have been included in such reports.

Except as otherwise described above, this Form 10-K should be read in the same manner as a conventional annual report on Form 10-K. References in this filing to the “Company,” “we,” “us,” or “our” refer to Hartman vREIT XXI, Inc. and its consolidated subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

As used herein, the terms “the Company,” “we,” “us” or “our” refer to Hartman vREIT XXI, Inc. and, as required by context, Hartman vREIT XXI Operating Partnership L.P., which we refer to as our “operating partnership,” and their respective subsidiaries.

Certain statements included in this Annual Report that are not historical facts (including statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions, or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events and results of operations could differ materially from those expressed or implied in any forward-looking statements.  Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

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Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon any forward-looking statements included herein. All forward-looking statements are made as of the date of this Annual Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.  

RISK FACTOR SUMMARY

We are subject to numerous risks and uncertainties that could cause our actual results and future events to differ materially from those set forth or contemplated in our forward-looking statements, including those summarized below. The following list of risks and uncertainties is only a summary of some of the most important factors and is not intended to be exhaustive. This risk factor summary should be read together with the more detailed discussion of risks and uncertainties set forth under “Item 1A. Risk Factors” of this Annual Report.

General Investment Risks

Risks Related to Conflict of Interest

Risks Related to Our Organizational Structure

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Risks Related to Investments in Real Estate

Risks Associated with Debt Financing

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Federal Income Tax Risks

Retirement Plan Risks

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PART I

Item 1.    Business

We were formed as a Maryland corporation on September 3, 2015 to acquire, develop and operate a diverse portfolio of value-oriented commercial properties, including office, retail, industrial and warehouse properties, located primarily in Texas. We intend to acquire properties in which there is a significant potential for growth in income and value from re-tenanting, repositioning, redevelopment, and operational enhancements. We believe that real estate, and in particular commercial real estate, provides an excellent investment for those investors looking for diversification, income and wealth preservation and growth in their portfolio. We believe that we have significant experience in acquiring and managing these types of properties, largely through our relationships with REIT Property Management, LLC, which is our Sponsor, and other affiliates.

Our charter authorizes the Company to issue 950,000,000 shares of capital stock, of which 270,000,000 are classified as Class A common stock, par value $0.01 per share (“Class A Shares”), 280,000,000 are classified as shares of Class I common stock, par value $0.01 per share (“Class I Shares”), 280,000,000 are classified as shares of Class S common stock, par value $0.01 per share ("Class S Shares"), 70,000,000 are classified as shares of Class T common stock, par value $0.01 per share (“Class T Shares”), and 50,000,000 are classified as shares of preferred stock without par value.

On June 24, 2016, we commenced our initial public offering in which we offered up to $269,000,000 in shares of our common stock, which at the time was unclassified. On January 9, 2017, we amended our charter to (1) create the Class A Shares and the Class T Shares and (2) convert each share of our common stock outstanding as of that date into one Class A Share. On February 6, 2017, we revised our initial public offering to allow the offer and sale of up to $269,000,000 in Class A Shares and Class T Shares.

In a follow-on offering that commenced on January 14, 2020, we began offering up to $180,000,000 in any combination of Class A Shares and Class T Shares to the public and up to $5,000,000 in Class A Shares and Class T Shares to stockholders pursuant to our distribution reinvestment plan.

On May 12, 2020, the Board created the Class I Shares and the Class S Shares, and our follow-on offering was revised on July 27, 2020 to allow us to offer shares of those classes. Our follow-on offering ended on January 14, 2023.

As of December 31, 2024, we had accepted subscriptions for and issued under all public offerings 8,684,826 net of redemptions, Class A Shares, including 840,901 shares, net of redemptions, pursuant to our distribution reinvestment plan, 38,198 Class I Shares, 19,708 Class S Shares, and 503,255 Class T Shares, net of redemptions, including 40,380 shares pursuant to our distribution reinvestment plan, resulting in aggregate gross proceeds of $91,699,487. We have used, and intend to continue to use, the net proceeds to acquire commercial real estate properties located primarily in Texas. For additional information, see “Investment Strategy” below.

As of December 31, 2023, we had accepted subscriptions for and issued under all public offerings 8,684,826, net of redemptions, Class A Shares, including 840,901 shares, net of redemptions, pursuant to our distribution reinvestment plan, 38,198 Class I Shares, 19,708 Class S Shares, and 503,255 Class T Shares, net of redemptions, including 40,380 shares pursuant to our distribution reinvestment plan, resulting in aggregate gross proceeds of $91,699,487.

Effective April 17, 2023, the Company terminated the advisory agreement with Hartman XXI Advisors, LLC, which served as our advisor, and the property management agreement with Hartman Income REIT Management, Inc., which served as our property manager.

Also effective April 17, 2023, the Company executed an advisory agreement with Hartman Advisors II, LLC, which now serves as our advisor, and a property management agreement with REIT Property Management, LLC, a wholly-owned subsidiary of Hartman Advisors II, LLC, which now serves as the property manager of our real estate investments. Allen R. Hartman is the sole member of Hartman Advisors II, LLC.

Hartman Advisors II, LLC manages our day-to-day operations and our portfolio of properties and real estate-related assets, subject to certain limitations and restrictions. Our advisor sources and presents investment opportunities to the Board. Our advisor also provides investment management, marketing, investor relations and other administrative services on our behalf. Subject to certain restrictions and limitations, the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.

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Substantially all of our business is conducted through Hartman vREIT XXI Operating Partnership, L.P., a Texas limited partnership, which we refer to as our operating partnership. We are the sole general partner of our operating partnership and Hartman vREIT XXI Holdings LLC, and Hartman vREIT XXI SLP, LLC, are the initial limited partners of our operating partnership. As we accept subscriptions for shares of our common stock, we will transfer substantially all of the net proceeds of the offering to our operating partnership as a capital contribution. The limited partnership agreement of our operating partnership provides that our operating partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that our operating partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, which classification could result in our operating partnership being taxed as a corporation rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by our operating partnership in acquiring and operating our investments, our operating partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of our operating partnership. We will experience a relative increase in liquidity as additional subscriptions for shares of our common stock are received and a relative decrease in liquidity as offering proceeds are used to acquire and operate our assets.

We elected to be treated as a REIT, under the Internal Revenue Code beginning with our taxable year ended December 31, 2017. If we qualify as a REIT for federal income tax purposes, then 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 after the taxable year in which we initially elect to be taxed as a REIT, then we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect our net income.

As of December 31, 2024, our portfolio consisted of 100% ownership of nine commercial properties, an 83% tenant-in-common interest in an office property, and investments in two unconsolidated affiliate entities. For additional information, see “Investment Portfolio” below.

Our principal executive offices are located at 11211 Katy Freeway, Suite 309, Houston, Texas 77079, and our main telephone number is 713-400-1000.

Investment Objectives

Our primary investment objectives are to:

We cannot assure our stockholders that we will achieve these objectives due to the current economic slowdown, high interest rate environment and increased inflation. Effective December 16, 2022, we suspended the payment of distributions to preserve capital and secure our financial health on an ongoing basis.

Investment Strategy

The cornerstone of our investment strategy is our advisor’s discipline in acquiring a portfolio of real estate properties that offer a blend of current and potential income based on in-place occupancy plus significant potential for growth in income and value from re-tenanting, repositioning, redevelopment, and operational enhancements. We refer to this strategy as “value-oriented” or the “Hartman Advantage.” We rely upon the value-oriented or Hartman Advantage strategy to evaluate numerous potential commercial real estate acquisition and investment opportunities per each completed acquisition or investment.

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We intend to continue to acquire, develop and operate a diverse portfolio of value-oriented commercial properties, including office, retail, industrial and warehouse properties located primarily in Texas. The commercial properties we acquire may be existing income-producing properties, properties developed by an affiliate of our advisor, newly constructed properties or properties under development or construction. We target properties that are located in high traffic areas, have adequate parking, have good curb appeal, have occupancy rates of at least 50%, and have a diversified tenant mix of creditworthy tenants.

We may also invest a portion of the offering proceeds available for investment in unimproved land upon which improvements are to be constructed or completed. However, we may not invest more than 10% of the aggregate cost of the real property assets within our portfolio in unimproved land or real properties which are not expected to produce income within two years of their acquisition. Development of real properties is subject to risks relating to a builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables.

Investment Portfolio

       As of December 31, 2023, our investments in real estate assets consisted of (1) 10 wholly-owned properties, (2) an 83% (approximate) tenant in common interest in an office property, (3) a 2.47% ownership interest in a special purpose entity that owned as of December 31, 2022, 39 office, retail and light industrial properties in Houston, Dallas, and San Antonio, Texas, which we refer to as Hartman SPE LLC, and (4) an equity investment in an affiliated REIT.

The following table sets forth information regarding our property portfolio as of December 31, 2023.

(1) We own an approximately 83% tenant in common interest in this office property.

On August 23, 2024, the Company completed the sale of Richardson Tech Center for $10,261,000. The property was acquired in March 2018 for $5,040,000. Proceeds from the sale were used to pay down the line of credit that the Company has with East West Bank by $9,337,000 and funded a Capital Reserve account with East West Bank for $500,000. Other closing costs were covered with the remainder of the funds.

As of December 31, 2024, our investments in real estate assets consisted of (1) nine wholly-owned properties, (2) an 83% (approximate) tenant in common interest in an office property, (3) a 2.47% ownership interest in a special purpose entity that we refer to as Hartman SPE LLC, and (4) an equity investment in an affiliated REIT.

The following table sets forth information regarding our property portfolio as of December 31, 2024.

(1) We own an approximately 83% tenant in common interest in this office property.

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Competition

The United States commercial real estate market is highly competitive. All of our properties will be located in areas that include competing properties. We face competition from various entities for investment opportunities in our targeted assets, including other REITs, pension funds, insurance companies, investment funds, real estate companies and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the geographic location of investments or the creditworthiness of tenants. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell real estate assets. The majority of our assets are class B office assets in suburban submarkets of Houston and San Antonio. While the post-pandemic work from home trend has continued to affect occupancy in commercial office buildings, suburban buildings have been somewhat safeguarded against this risk due to employees' demand to have a shortened commute. The amount of competition in a particular market could also impact our ability to lease space and impact the amount of rent we are able to charge. Disruptions in the credit markets may materially impact the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. A limited availability of financing in the future could reduce suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do. All of the above factors could result in delays in the investment of the proceeds from our initial public offering.

Employees

Although we have executive officers who manage our operations, we do not have any paid employees. The employees of our advisor and its affiliates provide management, acquisition, advisory and certain administrative services for us.

Regulations

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liabilities on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on a real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures or may impose material environmental liability. Additionally, tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our real properties. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business and results of operations or lower the value of our assets and, consequently, lower the amounts available for distribution to our stockholders.

We do not believe that compliance with existing environmental laws will have a material adverse effect on our financial condition or results of operations. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.

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Tax Status

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2017. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income (which is computed without regard to the dividends-paid deduction and excluding net capital gain) to our stockholders.  As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, then we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. We believe we are organized and operate in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

Financial Information About Industry Segments

Our current business consists of acquiring, developing, owning, managing, leasing, operating, and disposing of real estate assets. The Company operates as one reportable segment. See Note 2 to the consolidated financial statements for additional information regarding segment reporting.

Economic Dependency

We are dependent on our advisor for certain services that are essential to us, including the identification, evaluation, negotiation, purchase and disposition of properties and other investments, management of the daily operations of our real estate portfolio, and other general and administrative responsibilities. In the event that our advisor is unable to provide these services to us, we will be required to obtain such services from other sources, and our failure to identify such other sources could have an adverse impact on our financial condition and results of operations. We also depend upon the dealer manager for the sale of our shares of common stock in our initial public offering.

Available Information

We are subject to the reporting requirements of the Exchange Act and, accordingly, we file annual reports, quarterly reports and other information with the Securities and Exchange Commission (the “SEC”). Access to copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC, including amendments to such filings, may be obtained free of charge from our website, http://www.hartmanreits.com/hartman-vreit-xxi/sec-filings-2/. These filings are available promptly after we file them with, or furnish them to, the SEC. We are not incorporating our website or any information from the website into this Annual Report. The SEC also maintains a website, http://www.sec.gov, where our filings with the SEC are available free of charge. We will provide without charge a copy of this Annual Report, including financial statements and schedules, upon written request delivered to our principal executive office at the address listed on the cover page of this Annual Report.

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Item 1A.    Risk Factors

The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. References to “shares” and “our common stock” in this Item 1A refer to all share classes of our common stock.

Risks Related to Our Business and Operations

Shares of our common stock are illiquid. No public market currently exists for our shares, and our charter does not require us to liquidate our assets or list our shares on an exchange by any specified date. As a result, it will be difficult for our stockholders to sell their shares, and if they are able to sell their shares, they will likely sell them at a substantial discount.

There is no current public market for our shares. We presently intend, but are not required, to evaluate a transaction providing liquidity for our stockholders within three to seven years from the termination of our initial public offering. Our charter does not require the Board to pursue any particular liquidity event at any particular time or at all. However, our charter provides that if we have not begun the process of liquidating our assets or listing our shares on a securities exchange within seven years of the termination of our initial public offering and our board and a majority of our independent directors have not approved otherwise and set a future date for such a liquidation or listing, then, upon the request of stockholders holding 10% or more of our outstanding shares of common stock, our charter requires that we solicit proxies from stockholders to determine whether we should be liquidated and dissolved. Accordingly, it may be difficult for our stockholders to sell their shares of common stock at the times and/or the prices that they desire or at all. Our charter also prohibits the ownership of more than 9.8% in value of our outstanding capital stock or 9.8% in number of shares of our outstanding common stock unless exempted prospectively or retroactively by the Board. Even if our stockholders are able to sell shares of our common stock, the absence of a public market may cause the price received for any shares of our common stock sold to be less than what our stockholders paid or less than their proportionate value of the assets we own. Moreover, our share redemption program, which is currently suspended, includes numerous restrictions that limit our stockholders’ ability to sell their shares to us, and the Board has broad discretion to suspend our share redemption program without stockholder approval upon 30 days’ written prior notice. Investors should purchase our shares only as a long-term investment because of their illiquid nature.

Our cash distributions have been indefinitely suspended. To the extent paid in the future, our distributions will not be guaranteed, may fluctuate and may constitute a return of capital or taxable gain from the sale or exchange of property.

Effective December 16, 2022, the Board approved the suspension of the payment of distributions to our stockholders. There can be no assurance that the Board will recommence distributions. To the extent that the payment of distributions is resumed, the actual amount and timing of distributions will be determined by the Board and typically will depend upon the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from time to time. Our long-term strategy is to fund the payment of monthly distributions to our stockholders entirely from our funds from operations. However, we may need to borrow funds, request that our advisor in its discretion, defer its receipt of fees and reimbursements of expenses or, to the extent necessary, utilize offering proceeds in order to make cash distributions. Accordingly, the amount of distributions paid at any given time may not reflect current cash flow from operations.

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If we make distributions from sources other than our cash flow from operations, then we will have fewer funds available for the acquisition of properties, our stockholders’ overall return may be reduced and the value of a share of our common stock may be diluted.

Our organizational documents permit us to make distributions from any source. If we do resume distributions and our cash flow from operations is insufficient to cover our distributions, then we expect to use the proceeds from our public stock offerings, the proceeds from borrowings, and/or the waiver or deferral of fees otherwise owed to our advisor to make distributions. If we fund distributions from borrowings, sales of properties, or the net proceeds from our stock offerings, then we will have less funds available for the acquisition of assets resulting in potentially fewer investments, less diversification of our portfolio and a reduced overall return to you. In addition, the value of your investment in shares of our common stock may be diluted because funds that would otherwise be available to make investments would be diverted to fund distributions. Further, to the extent distributions exceed our current and accumulated earnings and profits, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain. There is no limit on the amount we can fund distributions from sources other than from our current and accumulated earnings and profits.

Because we are dependent upon our advisor and its affiliates to conduct our operations, any adverse changes in the financial health of our advisor or its affiliates or our relationship with them could hinder our operating performance and the return on our stockholders’ investment.

We are dependent on our advisor to manage our operations and our portfolio of real estate assets and our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor. Our advisor will depend largely upon the fees that it will receive from us in connection with the purchase, management and sale of assets, as well as fees it collects from other affiliates, to conduct its operations. Any adverse changes in the financial condition of our advisor or our relationship with our advisor could hinder its ability to successfully manage our operations and our portfolio of investments.

Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor. Our advisor’s business is sensitive to trends in the general economy, as well as the commercial real estate and credit markets. To the extent that any decline in our advisor’s revenues and operating results impacts the financial condition and performance of our advisor, our results of operations and financial condition could also suffer.

If we are unable to find suitable investments or we experience delays in doing so, then we may not be able to achieve our investment objectives or pay distributions.

Our ability to achieve our investment objectives and to pay distributions depends upon the performance of our advisor in the acquisition of our investments, including the determination of any financing arrangements. Competition from other entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of sellers of the types of properties we seek to purchase. Additionally, disruptions and dislocations in the credit markets may materially impact the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. A lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. We can give no assurance that our advisor will be successful in obtaining suitable investments on financially attractive terms or that, if our advisor makes investments on our behalf, our objectives will be achieved. If we, through our advisor, are unable to find suitable investments promptly upon receipt of offering proceeds, then we will hold the proceeds from our public offering in an interest-bearing account or invest the proceeds in short-term assets. If we would continue to be unsuccessful in locating suitable investments, then we may ultimately decide to liquidate. In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.

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Cybersecurity incidents or disruptions to the Company’s information technology systems or those of third-party service providers could adversely affect the Company’s business, financial condition, and results of operations.

The Company relies on information technology systems and third-party service providers to support important business functions, including accounting, financial reporting, property management, communications, and administrative operations. The Company and its service providers may be vulnerable to cybersecurity incidents, including unauthorized access, ransomware attacks, phishing attempts, malware, computer viruses, data breaches, and other cyber-related events.

A cybersecurity incident could result in operational disruption, unauthorized access to confidential information, interruptions in financial reporting systems, reputational harm, regulatory scrutiny, litigation, remediation costs, and other adverse consequences. Cybersecurity incidents affecting third-party service providers could also adversely affect the Company even if the Company’s own systems are not directly compromised.

Although the Company utilizes measures intended to assist in identifying and managing cybersecurity risks, there can be no assurance that such measures will be effective in preventing or mitigating all cybersecurity incidents. Any material cybersecurity incident could adversely affect the Company’s business, financial condition, results of operations, and cash flows.

We have determined estimated net asset values (“NAVs”) per share of our common stock as of December 31, 2023 and December 31, 2024. The NAV per share we disclose in future periods may vary significantly from the values established as of December 31, 2023 and December 31, 2024 as market conditions change, additional assets are acquired or disposed of, liabilities change, and additional capital is raised.

The estimated NAV per share disclosed by the Company may not accurately reflect the fair value of the Company’s assets and liabilities and does not necessarily represent the amount that stockholders would realize upon a sale of shares or a liquidation of the Company’s assets.

To assist members of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and their associated persons participating in our stock offerings, and pursuant to applicable FINRA rules, the Company discloses estimated NAV per share information not less frequently than annually, together with a description of the methodologies and valuation dates utilized in determining such values. The Board has established an estimated NAV per share of $9.83 as of December 31, 2024. The estimated NAV per share as of December 31, 2023 and December 31, 2022 was $9.78 and $7.97, respectively.

Commercial real estate values may fluctuate significantly due to changes in market conditions, interest rates, occupancy levels, leasing activity, operating performance, capital markets conditions, and other factors affecting the real estate industry. As a result, future determinations of estimated NAV per share may differ materially from prior estimates.

There are currently no SEC, federal, or state regulatory standards establishing a single methodology for determining estimated per share NAV. The Board is responsible for determining estimated NAV per share no less frequently than annually. In connection with this process, the Company may obtain independent third-party appraisals or valuation reports for certain properties and other assets. Any such valuations are estimates and should not be viewed as an exact measure of realizable value or liquidation proceeds.

For additional information regarding the calculation of estimated NAV per share as of December 31, 2024 and December 31, 2023 ($9.83 and $9.78 per share, respectively), see Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities—Estimated Net Asset Value Per Share.”

The Board previously authorized and declared stock dividends. Investors who purchased shares earlier in the Company’s offerings received additional shares as a result of such stock dividends. Because those investors own a greater number of shares for the same invested capital, they may receive proportionately greater proceeds upon a sale or liquidation of the Company compared to investors who purchased shares later in the offerings. Stock dividends were discontinued after September 1, 2019.

The value of a share of our common stock may be diluted if we pay a stock dividend.

The Board has previously authorized and declared stock dividends. Investors who purchased shares early in both our initial public offering and our follow-on offering received more shares for the same cash investment than investors who purchased later in the offerings as a result of the stock dividend. Because they own more shares, upon a sale or liquidation of the Company, these early investors will receive more sales proceeds or liquidating distributions relative to their invested capital compared to later investors. Unless our assets appreciate in an amount sufficient to offset the dilutive effect of the prior stock dividends, the value per share for later investors purchasing our stock will be below the value per share of earlier investors. Stock dividends were discontinued after September 1, 2019.

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We may change our targeted investments, our policies and our operations without stockholder consent.

Although we have historically invested in office, retail, industrial, and warehouse properties located primarily in Texas, we may also invest in other real estate asset classes and /or real estate assets located throughout the United States. We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than our historical investments. A change in our targeted investments or investment guidelines could adversely affect the value of our common stock and our ability to make distributions to our stockholders.

We pay substantial fees and expenses to our advisor and its affiliates. These fees were not negotiated at arm’s length, may be higher than fees payable to unaffiliated third parties.

The fees that we pay to our advisor and its affiliates were not negotiated at arm’s length and may be higher than fees payable to unaffiliated third parties. 

We reimburse our advisor for amounts it pays in connection with the acquisition or development of a property whether or not we ultimately acquire the asset.

We rely on our advisor to locate and acquire properties on our behalf. To the extent that we reimburse our advisor for expenses incurred and a property is not acquired, there will be less funds available for investment in other properties. The failure to close on an acquisition of a property will mean that expenses have been incurred without the ability to recoup those expenses from the operation of the property and could reduce the distributions our stockholders may receive.

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Our stockholders are limited in their ability to sell shares of common stock pursuant to our share repurchase program. Stockholders may not be able to sell any shares of our common stock back to us, and if they do sell their shares, they may not receive the price they paid.

Our share redemption program has been suspended indefinitely. If our share redemption program were to be reinstated, then it could provide our stockholders with a limited opportunity to have their shares of our common stock redeemed by us at a price equal to or at a discount from the purchase price of the shares of our common stock being redeemed, or at the NAV per share price at the time of redemption, subject to the Board's discretion. In such event, we anticipate that shares of our common stock would be redeemed on a quarterly basis. However, our share redemption program contains certain restrictions and limitations, including those relating to the number of shares of our common stock that we can redeem at any given time and limiting the redemption price. Specifically, at the time of its suspension, we limited the number of shares to be redeemed to no more than (1) 5.0% of the weighted-average number of shares of our common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under our distribution reinvestment program in the prior calendar year plus 1.0% of the operating cash flow from the previous fiscal year (to the extent positive) and such additional funds as may be reserved for that purpose by the Board. In addition, the Board reserves the right to amend, or suspend the share redemption program at any time upon 30 days’ notice. Therefore, our stockholders may not have the opportunity to make a redemption request prior to a potential termination or suspension of the share redemption program and our stockholders may not be able to sell any of their shares of our common stock back to us pursuant to our share redemption program. Moreover, if our stockholders do sell their shares of common stock back to us pursuant to the share redemption program, the price at which the stock will be redeemed may not be the same price they paid for any shares of our common stock being redeemed.

If we internalize our management functions, then our stockholders’ interest in us could be diluted and we could incur other significant costs associated with being self-managed.

The Board may decide in the future to internalize our management functions. If we do so, then we may elect to negotiate to acquire our advisor’s assets and personnel. At this time, we cannot anticipate the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of our stockholders’ interests in our Company and could reduce the earnings per share and funds from operations per share attributable to our stockholders’ investment in our Company.

Additionally, while following such an internalization we would no longer bear the costs of the various fees and expenses we currently pay to our advisor under the advisory agreement with our advisor, our direct expenses would include general and administrative costs, including legal, accounting and other expenses related to corporate governance, SEC reporting and compliance. We would also be required to employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances as well as incur the compensation and benefits costs of our officers and other employees and consultants that we now expect will be paid by our advisor or its affiliates. We may issue equity awards to officers, employees and consultants, which awards would decrease net income and funds from operations and may further dilute our stockholders’ investment. We cannot reasonably estimate the amount of fees to our advisor we would save or the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to our advisor, then our earnings per share and funds from operations per share would be lower as a result of the internalization than it otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.

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If we internalize our management functions, then we could have difficulty integrating these functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. These personnel have a great deal of knowledge and experience which provides us with economies of scale. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to effectively manage an internalization transaction could cause us to incur excess costs and suffer deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our real estate assets. In recent years, internalization transactions have been the subject of stockholder litigation. Stockholder litigation can be costly and time-consuming, and there can be no assurance that any litigation expenses we might incur would not be significant or that the outcome of litigation would be favorable to us. Any amounts we are required to expend in defending against such litigation would reduce the amount of funds available for investment by us in properties or other investments and the amount of funds available for distributions to stockholders.

If we were to internalize our management or if another investment program, whether sponsored by our Sponsor or otherwise, hires the employees of our advisor in connection with its own internalization transaction or otherwise, then our ability to conduct our business may be adversely affected.

We rely on persons employed by affiliates and the parent company of our advisor to manage our day-to-day operations. If we were to effectuate an internalization of our advisor, then we may not be able to retain all of the employees of the parent or affiliates of our advisor or to maintain a relationship with our Sponsor. In addition, some of the employees of our advisor and affiliates provide services to one or more other investment programs, including Hartman Retail III, DST and Hartman Total Return Fund, Inc. These programs or third parties may decide to retain some or all of advisor’s key employees in the future. If this occurs, then these programs could hire certain of the persons currently employed by our advisor and its affiliates who are most familiar with our business and operations, thereby potentially adversely impacting our business.

If we are unable to obtain funding for future capital needs, then cash distributions to our stockholders could be reduced and the value of our investments could decline.

If we need additional capital in the future to improve or maintain our properties or for any other reason, then we may have to obtain financing from sources beyond our cash flow from operations, such as borrowings, sales of assets or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, then our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders and could reduce the value of an investment in shares of our common stock.

Risks Related to Conflicts of Interest

Our advisor and its affiliates, including all of our executive officers, our affiliated directors and other key real estate professionals, will face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

Our advisor and its affiliates receive substantial fees from us. These fees could influence our advisor’s advice to us. Among other matters, these compensation arrangements could affect their judgment with respect to:

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The asset management fees that our advisor receives in connection with the acquisition and management of our assets are based on the cost of the investment, not on the value of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us. Our advisor will have considerable discretion with respect to the terms and timing of acquisition, disposition and leasing transactions. In evaluating investments and other management strategies, the opportunity to earn these fees may lead our advisor to place undue emphasis on criteria relating to its compensation at the expense of other criteria, such as the preservation of capital, to achieve higher short-term compensation. Payment of fees and expenses to our advisor and our dealer manager will reduce the cash available for distribution and could result in decisions that are not in the best interests of our stockholders

Our advisor will face conflicts of interest relating to joint ventures that we may form with its affiliates, which conflicts could result in a disproportionate benefit to the other venture partners at our expense.

If approved by our independent directors, then we may enter into joint venture agreements with other programs sponsored by our Sponsor or its affiliates for the acquisition, development or improvement of properties or other investments. Our advisor and the advisors to other Hartman-sponsored programs have the same executive officers and key employees; and these persons will face conflicts of interest in determining which Hartman-sponsored program should enter into any particular joint venture agreement. These persons may also face a conflict in structuring the terms of the relationship between our interests and the interests of the Hartman-affiliated co-venturer and in managing the joint venture. Any joint venture agreement or transaction between us and a Hartman-affiliated co-venturer will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. The Hartman-affiliated co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. These co-venturers may thus be either to our and your benefit or detriment.

Our advisor, the real estate professionals assembled by our advisor and their affiliates and officers will face competing demands relating to their time, and this may cause our operations and your investment to suffer.

We rely on the parent company to our advisor, the real estate professionals our advisor has assembled and their affiliates and officers for the day-to-day operation of our business. Our advisor, its real estate professionals and affiliates, including our officers, have interests in other programs sponsored by our Sponsor and its affiliates and engage in other business activities. As a result of their interests in such other programs and the fact that they have engaged in and they will continue to engage in other business activities, they will face conflicts of interest in allocating their time among us, our advisor and such other programs and other business activities in which they are involved. Should our advisor breach its fiduciary duty to us and our stockholders by inappropriately devoting insufficient time or resources to our business due to the competing demands of other programs, our operations, the returns on our investments, and therefore our profitability, may suffer.

Our advisor serves also as the sponsor of the Company. Both entities are wholly owned by one individual. The concentration of control in a single individual presents a governance risk. This structure may lead to conflicts of interest, reduced accountability, and decisions that prioritize the sponsor’s interests over those of shareholders.

Our sponsor and advisor are under the common control of a single individual. This concentration of authority may create conflicts of interest, as the same person may be incentivized to make decisions that benefit the sponsor or advisor at the expense of our stockholders. This risk is mitigated by the fact that the sponsor has a limited influence on the Company, and the independent board of directors can terminate the advisor at any time.

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Risks Related to Our Organizational Structure

Maryland law and our organizational documents limit your right to bring claims against our officers and directors.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify and advance expenses to our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities subject to any limitations under Maryland law or in our charter. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases. However, our charter provides that we may not indemnify our directors, our advisor and its affiliates for loss or liability suffered by them or hold our directors or our advisor and its affiliates harmless for loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification or obligation to hold harmless is recoverable only out of our net assets, including the proceeds of insurance, and not from the stockholders.

Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise benefit our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of the aggregate of our then outstanding shares of capital stock (which includes common stock and any preferred stock or convertible stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of the aggregate of our then outstanding common stock unless exempted (prospectively or retroactively) by the Board. These restrictions may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell shares of our common stock.

We may issue preferred stock, convertible stock or other classes of common stock, which issuance could adversely affect the holders of our common stock.  

Our stockholders do not have preemptive rights to any shares issued by us in the future. We may issue, without stockholder approval, preferred stock, convertible stock or other classes of common stock with rights that could dilute the value of shares of common stock. However, the issuance of preferred stock or convertible stock must be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. The issuance of preferred stock or other classes of common stock could increase the number of stockholders entitled to distributions without simultaneously increasing the size of our asset base.

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Our charter, as amended and supplemented to date, authorizes us to issue up to 950,000,000 shares of capital stock, of which 270,000,000 are classified as Class A Shares, 280,000,000 are classified as Class I Shares, 280,000,000 are classified as Class S Shares, 70,000,000 are classified as Class T Shares, and 50,000,000 are classified as shares of preferred stock without par value. The Board, with the approval of a majority of the entire board of directors and without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series. If we ever create and issue preferred stock or convertible stock with a distribution preference over common stock, then payment of any distribution preferences of outstanding preferred stock or convertible stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities and the removal of incumbent management.

Our UPREIT structure may result in potential conflicts of interest with limited partners in our operating partnership whose interests may not be aligned with those of our stockholders.

We are structured as an “UPREIT,” which stands for “umbrella partnership real estate investment trust.” We use the UPREIT structure because a contribution of property directly to us is generally a taxable transaction to the contributing property owner. In the UPREIT structure, a contributor of a property who desires to defer taxable gain on the transfer of a property may transfer the property to our operating partnership in exchange for limited partnership interests and defer taxation of gain until the contributor later exchanges his or her limited partnership interests for shares of our common stock. We believe that using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.

Our operating partnership may issue limited partner interests in connection with certain transactions. Limited partners in our operating partnership have the right to vote on certain amendments to the operating partnership agreement, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. As general partner of our operating partnership, we are obligated to act in a manner that is in the best interest of all partners of our operating partnership. Circumstances may arise in the future when the interests of limited partners in our operating partnership may conflict with the interests of our stockholders. These conflicts may be resolved in a manner stockholders do not believe are in their best interest.

In addition, the special limited partnership interest holder is an affiliate of our advisor and, as the special limited partner in our operating partnership, may be entitled to: (1) receive certain distributions upon the disposition of certain of our operating partnership’s assets; or (2) a one-time payment in the form of cash, interests in our operating partnership or shares in connection with the redemption of the special limited partnership interests upon the occurrence of a listing of our shares on a national stock exchange or certain events that result in the termination or a non-renewal of our advisory agreement. The special limited partnership interest holder will only become entitled to the compensation after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such invested capital. This potential obligation to make substantial payments to the holder of the special limited partnership interests would reduce the overall return to stockholders to the extent such return exceeds 6.0%.

Our stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks faced by our stockholders.

The Board determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. the Board may amend or revise these and other policies without a vote of our stockholders. Under Maryland Law and our charter, our stockholders have a right to vote only on limited matters. The Board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks faced by our stockholders.

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Our stockholders’ investment returns may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.

Neither we, our operating partnership nor any of our subsidiaries intend to register as an investment company under the Investment Company Act of 1940. Our operating partnerships and subsidiaries’ intended investments in real estate will represent the substantial majority of our total asset mix. In order for us not to be subject to regulation under the Investment Company Act of 1940, we engage, through our operating partnership and our wholly and majority-owned subsidiaries, primarily in the business of buying real estate. These investments must be made within a year after our initial public offering ends.

Section 3(a)(1)(A) of the Investment Company Act of 1940 defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act of 1940 defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940.

We believe that we, our operating partnership and most of the subsidiaries of our operating partnership will not fall within either definition of investment company under Section 3(a)(1) of the Investment Company Act of 1940 as we intend to invest primarily in real property, through our operating partnership or our operating partnership’s wholly or majority-owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1)(C) of the Investment Company Act of 1940. We are organized as a holding company that conducts its businesses primarily through our operating partnership, which in turn is a company conducting its business of investing in real property either directly or through its subsidiaries. Both we and our operating partnership intend to conduct our operations so that we comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor our operating partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act of 1940 because neither we nor our operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our operating partnership or our operating partnership’s wholly owned or majority-owned subsidiaries, we and our operating partnership will be primarily engaged in the business of purchasing or otherwise acquiring real property.

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In the event that the value of investment securities held by a subsidiary of our operating partnership were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exclusion from the definition of “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act of 1940. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in “mortgage and other liens on and interests in real estate,” which we refer to as “qualifying real estate assets,” and maintain at least 80% of its assets in qualifying real estate assets or other real estate-related assets. The remaining 20% of the portfolio can consist of miscellaneous assets. What we buy and sell is therefore limited by these criteria. How we determine to classify our assets for purposes of the Investment Company Act of 1940, will be based in large measure upon no-action letters issued by the SEC staff in the past and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC or its staff will concur with our classification of our assets. Future revisions to the Investment Company Act of 1940 or further guidance from the SEC staff may cause us to lose our exclusion from the definition of ‘investment company’ or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.

There can be no assurance that the laws and regulations governing the Investment Company Act of 1940 status of REITs, including more specific or different guidance regarding these exclusions that may be published by the SEC or its staff, will not change in a manner that adversely affects our operations. For instance, in 2011, the SEC solicited public comment on a wide range of issues relating to Section 3(c)(5)(C) of the Investment Company Act of 1940, including the nature of the assets that qualify for purposes of the exclusion. In addition, the SEC or its staff could take action that results in our or our subsidiary’s failure to maintain an exception or exemption from the Investment Company Act of 1940.

In the event that we, or our operating partnership, were to acquire assets that could make either entity fall within one of the definitions of an investment company under Section 3(a)(1) of the Investment Company Act of 1940, we believe that we would still qualify for an exclusion from registration pursuant to Section 3(c)(6) of the Investment Company Act of 1940. Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our operating partnership may rely on Section 3(c)(6) if 55% of the assets of our operating partnership consist of, and at least 55% of the income of our operating partnership is derived from, qualifying real estate assets owned by wholly owned or majority-owned subsidiaries of our operating partnership.

To ensure that neither we, our operating partnership nor any of our subsidiaries are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, we, our operating partnership or our subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, our operating partnership and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to remain outside the definition of ‘investment company’ or maintain an exclusion from the definition of an investment company. If we, our operating partnership or our subsidiaries are required to register as an investment company but fail to do so, then the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

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Although we have opted out of certain anti-takeover provisions of Maryland law, the Board could opt into these protections in the future, which may make it more difficult for us to be acquired and may prevent stockholders from receiving a premium price for their stock in connection with a business combination.

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

Another anti-takeover statute under Maryland law, the Control Share Acquisition Act, provides that the holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights with respect to such control shares, except to the extent approved by a vote of two-thirds of the votes entitled to vote generally in the election of directors, excluding votes cast by the acquirer, by officers or by directors who are employees of the corporation.  Should the Board opt into these provisions of Maryland Law in the future, it may discourage offers from third parties to acquire us and increase the difficulty of consummating any offer.

We may become subject to certain other anti-takeover provisions of Maryland law that would make it harder for stockholders to change the composition of the Board and may prevent stockholders from receiving a premium price for their shares in connection with an unsolicited takeover.

Subtitle 8 of Title 3 of the Maryland General Corporation Law, or the MGCL, permits the board of directors of a Maryland corporation that has a class of securities registered under the Exchange Act and that has at least three independent directors, to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in its charter or bylaws, to certain additional anti-takeover provisions, including a two-thirds vote requirement for removing a classification of directors. Our charter does not prohibit approval and the imposition of a two-thirds vote requirement for removing a director, and require that vacancies on the board of directors be filled only by the remaining directors and (if the board is classified) for the remainder of the full term of the class of directors in which the vacancy occurred, and a majority vote for the calling of a stockholder-requested special meeting of stockholders. We have elected by a provision in our charter that, at such time, if ever, as we are eligible to make a Subtitle 8 election, vacancies on our board may be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred. We have not elected to be subject to the other provisions of Subtitle 8, and as discussed above, to do so we must have a class of equity securities registered under the Exchange Act and at least three independent directors. While we expect to meet the first of these requirements, we have only two independent directors at this time, and we have no current plan to add a third, although that may change. Accordingly, our board of directors may in the future elect, at such time as we are eligible to make a Subtitle 8 election and without stockholder approval, to classify our board or to become subject to any of the other provisions of Subtitle 8. Any of these provisions could make it more difficult and more time consuming for stockholders to change the composition of our board of directors and could prevent stockholders from receiving a premium price for their shares in connection with an unsolicited takeover.

Our charter includes an anti-takeover provision that may discourage a stockholder from launching a tender offer for our shares.

Our charter provides that any tender offer made by a stockholder, including any “mini-tender” offer, must comply with most of the provisions of Regulation 14D promulgated under the Exchange Act. The offering stockholder must provide our company notice of such tender offer at least ten business days before initiating the tender offer. If the offering stockholder does not comply with these requirements, then we would have the right to redeem that stockholder’s shares and any shares acquired in such tender offer. In addition, the non-complying stockholder shall be responsible for all of our company’s expenses in connection with that stockholder’s noncompliance. This provision of our charter may discourage a stockholder from initiating a tender offer for our shares and prevent our stockholders from receiving a premium price for your shares in such a transaction.

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Risks Related to Investments in Real Estate

A decrease in demand for office, retail or industrial space may have a material adverse effect on our financial condition and results of operations.

Our portfolio of properties consists primarily of office, retail, industrial, and warehouse properties. A decrease in demand for office, retail or industrial space could have a material adverse effect on our financial condition and results of operations. If parts of our properties are leased within a particular sector, then a significant downturn in that sector in which the tenants’ businesses operate would adversely affect our results of operations.

Economic and regulatory changes that impact the real estate market generally may decrease the value of our investments and weaken our operating results.

The properties we own and may subsequently acquire, and their performance, are subject to the risks typically associated with real estate, including:

Any of the above factors, or a combination thereof, could result in a decrease in the value of our investments, which would have an adverse effect on our results of operations, reduce the cash available for distributions and the return on our stockholders’ investments.

Global and U.S. market, political and economic conditions may adversely affect our liquidity and financial condition and those of our tenants.

While recent economic data reflects an economic slowdown in the United States, the cost and availability of credit may continue to be adversely affected by governmental budget and global economic factors. Concern about continued stability of the economy and credit markets generally, and the strength of counterparties specifically, has led many lenders and institutional investors to reduce or, in some cases, cease to provide funding to borrowers. Volatility in the U.S. and international capital markets and concern over a return to recessionary conditions in global economies may adversely affect the liquidity and financial condition of our tenants and us. If these market conditions continue, they may limit our ability to timely refinance maturing liabilities and access the capital markets to meet liquidity needs. Further instability in foreign countries caused by political upheaval or real or threatened armed conflicts could adversely affect the U.S. and local economies, trading markets, jobs, interest rates and lending practices and may adversely affect our liquidity and financial condition as well as the ability of our tenants to pay rent.

Market trends and other conditions outside of our control could decrease the value of our investments and weaken our operating results.

Our performance and the value of our portfolio are subject to risks associated with our investments in real estate assets and with trends in the real estate industry. Our economic performance and the value of our investments are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this nature would adversely impact our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

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Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economic performance and the value of our portfolio may include:

A downturn in oil demand or weakening of the oil and gas markets could adversely affect our financial condition, results of operations, and our ability to borrow funds.

Our investment strategy relies heavily on locating and operating properties in Texas, including properties located in the major metropolitan areas of Dallas/Fort Worth, Houston and San Antonio. The economies of these cities rely significantly on the exploration, production and processing of oil, natural gas and petrochemicals. A prolonged weakening in the price of oil could make oil exploration and related industries unprofitable for certain companies, forcing them out of the business or forcing them to downsize their operations. To the extent that we lease space to oil and gas companies or companies that support the oil and gas industry, our operations could be negatively impacted by the loss of tenants or less demand for space in our buildings.  

To the extent that oil producers have borrowed from lending institutions and are no longer able to repay their debt, lending practices in Texas could be negatively impacted, making funds more difficult to borrow or more expensive to borrow.

The loss or downsizing of a significant tenant in a property could adversely affect our financial condition, results of operations, ability to borrow funds and cash flows.

Our financial condition, results of operations, ability to borrow funds, and cash flows would be adversely affected if any of our significant tenants in a property fails to renew its lease, renews its lease on terms less favorable to us, renews for less space due to economic conditions or more efficient use of space or becomes bankrupt or insolvent or otherwise unable to satisfy its lease obligations and we are unable to re-lease the space.

If we enter into long-term leases with our tenants, then those leases may not result in fair value over time.

Long-term leases do not allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, then significant increases in future property operating costs could result in receiving less than fair value from these leases. Such circumstances would adversely affect our revenues and funds available for distribution.

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Downturns in our tenants’ businesses may reduce our revenues and cash flows.

We derive substantially all of our revenues from continuing operations from rental income and tenant reimbursements. A tenant may experience a downturn in its business or may never generate positive results of operations, which may weaken its financial condition and result in its failure to make timely rental payments or result in defaults under our leases. For tenants that operate pursuant to capital investments, an acceleration of losses may result in a faster than expected use of available cash. In the event of default by a tenant, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.

The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenant becomes a debtor in a case under federal bankruptcy law, then we would not be permitted to evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might permit the tenant to reject and terminate its lease with us. Our claim against the tenant for unpaid and future rent could be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. Therefore, our claim for unpaid rent would likely not be paid in full. Any losses resulting from the bankruptcy of any of our existing tenants could adversely impact our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

We are subject to governmental regulations that may affect the renovations to, and use of, our properties.

Our properties are subject to regulation under federal laws, such as the Americans with Disabilities Act of 1990, or the ADA, pursuant to which all public accommodations must meet federal requirements related to access and use by disabled persons, and state and local laws addressing earthquake, fire and life safety requirements. Although we believe that our properties will substantially comply with requirements under applicable governmental regulations, it is possible that any of our properties could be audited or investigated for compliance by any regulatory agency. If we do not comply with material provisions of the ADA or other regulations affecting our properties, then we might be required to take remedial action, which could include making modifications or renovations to properties. Federal, state, or local governments may also enact future laws and regulations that could require us to make significant modifications or renovations to our properties. If we were to incur substantial costs to comply with the ADA or any other regulations, then our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations and to pay dividends and distributions to our stockholders could be adversely affected.

We face significant competition, which may decrease the occupancy and rental rates of our properties.

We compete with developers, owners and operators of office and retail properties and other commercial real estate, many of which own properties similar to the properties that we expect to acquire, in the same submarkets in which our properties are located, but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates until their available space is leased. If our competitors offer space at rental rates below the rates currently charged by us for comparable space, then we may be pressured to reduce our rental rates below those currently charged in order to retain tenants when our tenant leases expire. As a result, our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders may be adversely affected.

In order to maintain the quality of our properties and successfully compete against other properties, we must periodically spend money to maintain, repair and renovate our properties, which reduces our cash flows. If our properties are not as attractive to current and prospective tenants in terms of rent, services, condition, or location as properties owned by our competitors, then we could lose tenants or suffer lower rental rates. As a result, we may from time to time be required to make significant capital expenditures to maintain the competitiveness of our properties. There can be no assurances that any such expenditure would result in higher occupancy or higher rental rates, or deter existing tenants from relocating to properties owned by our competitors.

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We may be unable to complete acquisitions and successfully operate acquired properties.

Our ability to acquire properties on favorable terms and successfully operate them is subject to various risks, including the following:

If one or more of these events were to occur in connection with our acquired properties, then we could be required to recognize an impairment loss. These events could also have an adverse impact on our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on your investment.

A property may incur vacancies through either the expiration or the continued default of a tenant lease. Long-term vacancies would reduce our revenues and the cash available for distributions. In addition, because the value of a property’s lease has a significant impact on that property’s market value, the resale value of properties with high or prolonged vacancies could suffer, further reducing the value of an investment in our Company.

We may own certain properties subject to ground leases and other restrictive agreements that limit our uses of the properties, restrict our ability to sell or otherwise transfer the properties and expose us to the loss of the properties if such agreements are breached by us, terminated or not renewed.

We may acquire properties that we lease individually on a long-term basis. These ground leases and other restrictive agreements may impose significant limitations on our uses of the subject property, restrict our ability to sell or otherwise transfer our interests in the property or restrict our leasing of the property. These restrictions may limit our ability to timely sell or exchange the properties, impair the properties’ value or negatively impact our ability to find suitable tenants for the properties. In addition, if we default under the terms of any particular lease, we may lose the ownership rights to the property subject to the lease. Upon expiration of a lease, we may not be able to renegotiate a new lease on favorable terms, if at all. The loss of the ownership rights to these properties or an increase of rental expense could have an adverse effect on our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

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Real estate assets are illiquid, and we may not be able to sell our properties when we desire.

Our investments in our properties are relatively illiquid, limiting our ability to sell our properties quickly in response to changes in economic or other conditions. In addition, the Internal Revenue Code generally imposes a 100% prohibited transaction tax on profits derived by REITs from sales of properties held primarily for sale to customers in the ordinary course of business, which effectively limits our ability to sell properties other than on a selected basis. These restrictions on our ability to sell our properties could have an adverse effect on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Our advisor relies on information technology networks and systems in providing services to us, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

Risks associated with security breaches, whether through cyber-attacks or cyber-intrusions over the internet, malware, computer viruses, attachments to e-mails, or otherwise, against persons inside our organization, persons with access to systems inside our organization, the U.S. government, financial markets or institutions, or major businesses, including tenants, could disrupt or disable networks and related systems, other critical infrastructures, and the normal operation of business. The risk of a security breach or disruption, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments, and cyber-terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. Even though we may not be specifically targeted, cyber-attacks on the U.S. government, financial markets, financial institutions, or other major businesses, including tenants, could disrupt our normal business operations and networks, which may in turn have a material adverse impact on our financial condition and results of operations.

IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations. They also may be critical to the operations of certain of our tenants. Although we believe we will be able to maintain the security and integrity of these types of networks and related systems, or implement various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. While, to date, we are not aware that we have experienced any significant cyber-attacks or cyber-intrusions, we may not be able to anticipate or implement adequate security barriers or other preventive measures. A security breach or other significant disruption involving our IT networks and related systems could:

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Future terrorist activity or engagement in war by the United States may have an adverse effect on our financial condition and operating results.

Terrorist attacks in the United States or other acts of terrorism or wars may result in declining economic activity, which could harm the demand for and the value of our properties. In addition, the public perception that certain locations are at greater risk for attack, such as major airports, ports, and rail facilities, may decrease the demand for and the value of our properties near these sites. A decrease in demand could make it difficult for us to renew or re-lease our properties at these sites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our properties through damage, destruction, or loss, and the availability of insurance for these acts may be less, and cost more, which could adversely affect our financial condition. To the extent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.

Terrorist acts and engagement in war by the United States also may adversely affect the markets in which our securities trade and may cause further erosion of business and consumer confidence and spending and may result in increased volatility in national and international financial markets and economies. Any one of these events may cause a decline in the demand for our office leased space, delay the time in which our new or renovated properties reach stabilized occupancy, increase our operating expenses, such as those attributable to increased physical security for our properties, and limit our access to capital or increase our cost of raising capital.

From time to time, we may be involved in legal proceedings, lawsuits and other claims. Unfavorable resolution of litigation matters and disputes could have a material adverse effect on our financial condition.

We may be named as defendants in lawsuits arising out of our alleged acts and omissions or the alleged acts and omissions of our operators and tenants. An unfavorable resolution of litigation could have a material adverse effect on our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations, and ability to pay dividends and distributions to our stockholders. Regardless of its outcome, litigation could result in substantial costs and expenses and significantly divert the attention of our management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, litigation. In addition, litigation, government proceedings or environmental matters could lead to increased costs or interruption of our normal business operations.

As of the date of this Annual Report, we were involved in pending litigation the outcome of which could cause the foregoing risks to materialize. See the Item 3 of Part I of this Annual Report for further information.

Our joint venture partners could take actions that decrease the value of an investment to us and lower our stockholders’ overall return.

We may enter into joint ventures or other co-ownership arrangements with affiliates or with third parties having investment objectives similar to ours for the acquisition, development or improvement of properties as well as the acquisition of real estate-related investments. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with other forms of real estate investment, including, for example:

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment.

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Because we rely on our advisor, its affiliates and third-party sub-managers to manage the day-to-day affairs of any properties we may acquire, should the staff of a particular property perform poorly, our operating results for that property will similarly be hindered and our net income may be reduced.

We depend upon the performance of our property managers to effectively manage our properties and real estate-related assets. In order to increase or maintain adequate occupancy levels, we may have to offer inducements, such as free rent, to compete for tenants. Poor performance by those sales, leasing and other management staff members operating a particular property will necessarily translate into poor results of operations for that particular property. Should our property manager, its affiliates or third-party sub-managers fail to identify problems in the day-to-day management of a particular property or fail to take the appropriate corrective action in a timely manner, our operating results may be hindered and our net income reduced.

If we are unable to sell a property for the price, on the terms, or within the time frame we desire, then our ability to pay cash distributions to our stockholders could be limited.

Many factors that are beyond our control affect the real estate market and could affect our ability to sell properties for the price, on the terms, or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. Because real estate investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions to our stockholders and could reduce the value of an investment the Company.

Government entities and contractors may cause unforeseen delays and increase costs to renovate properties that we may acquire, which may reduce our net income and cash available for distributions to you.

We may seek to or be required to incur substantial capital obligations to renovate or reposition existing properties that we acquire. Our advisor and its key real estate professionals will do their best to estimate these costs prior to acquisition but may not be able to ascertain all hidden defects or problems. There could be unknown and excessive costs, expenses and delays associated with a property’s renovations and interior and exterior upgrades. We will be subject to risks relating to the uncertainties associated with permits and approvals required by governmental entities, community associations and our construction manager’s ability to control costs and to build in conformity with plans and the established timeframe. We will pay a construction management fee to a construction manager, which may be one of our affiliates, if new capital improvements are required. If we are unable to increase rental rates or sell a property at a price consistent with our underwritten projections due to local market or economic conditions to offset the cost of renovating a property, then the return on an investment in our company may suffer.

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We may be required to make rent or other concessions and significant capital expenditures to improve our properties in order to retain and attract tenants, which could adversely affect our financial condition, results of operations and cash flow.

In order to retain existing tenants and attract new clients, we may be required to offer substantial rent abatements, tenant improvements and early termination rights or accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants in sufficient numbers, which could adversely affect our results of operations and cash flow. Additionally, if we need to raise capital to make such expenditures and are unable to do so, or such capital is otherwise unavailable, then we may be unable to make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases, which could adversely affect our financial condition, results of operations and cash flow.

Costs of responding to both known and previously undetected environmental contamination and hazardous conditions may decrease our cash flows and limit our ability to make distributions.

Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials, and other health and safety-related concerns.

Some of these laws and regulations may impose joint and several liability on the tenants, current or previous owners or operators of real property for the costs to investigate or remediate contaminated properties, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Our tenants’ operations, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.

Environmental laws also may impose liens on a property or restrictions on the manner in which a property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances.

The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties or damages we must pay will reduce our ability to make distributions to our stockholders and may reduce the value of an investment in our company.

Properties acquired by us may have toxic mold or asbestos that could result in substantial liabilities to us.

Litigation and concern about indoor exposure to certain types of toxic molds and asbestos has been increasing as the public becomes aware that exposure to mold and asbestos can cause a variety of health effects and symptoms, including allergic reactions, cancer and even death. It is impossible to eliminate all mold and mold spores in the indoor environment. There can be no assurance that the properties acquired by us will not contain toxic mold or that buildings containing asbestos encased so as to render the asbestos non-health threatening will remain that way. The difficulty in discovering indoor toxic mold growth could lead to an increased risk of lawsuits by affected persons and the risk that the cost to remediate toxic mold and/or asbestos will exceed the value of the property. There is a risk that we may acquire properties that contain toxic mold and/or asbestos and such properties may negatively affect our performance and the return on an investment in our company.

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Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on our stockholders’ investments.

There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism or catastrophes could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase coverage against terrorism or catastrophes as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, then the value of our assets will be reduced by any such uninsured loss. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions.

Our properties may be dispersed geographically and across various markets and sectors.

We may acquire and operate properties in different locations throughout Texas and the United States and in different markets and sectors. The success of our properties will depend largely on our ability to hire various managers and service providers in each area, market and sector where the properties are located or situated. It may be more challenging to manage a diverse portfolio. Failure to meet such challenges could reduce the value of our stockholders’ investments.

We may be limited in our ability to diversify our investments, making us more vulnerable economically than if our investments were diversified.

Our ability to diversify our portfolio may be limited both as to the number of investments owned and the geographic regions in which our investments are located. While we seek to diversify our portfolio by geographic location, we focus on our specified target markets that we believe offer the opportunity for attractive returns and, accordingly, our actual investments may result in concentrations in a limited number of geographic regions. As a result, there is an increased likelihood that the performance of any single property, or the economic performance of a particular region in which our properties are located, could materially affect our operating results.

Our tenants may be adversely affected by a decline in manufacturing activity in the U.S. and threat due to uncertainty of tariffs.

Fluctuations in manufacturing activity in the U.S. may adversely affect our industrial tenants and therefore the demand for and profitability of any industrial properties we acquire. Trade agreements with foreign countries have given employers the option to utilize less expensive foreign manufacturing workers. Outsourcing manufacturing activities could reduce the demand for U.S. workers, thereby reducing the profitability of our industrial tenants and the demand for and profitability of our industrial properties.

Tariffs that raise costs for businesses can deter new tenants from leasing space in commercial office buildings, reducing occupancy rates and hindering the growth of commercial hubs. Tariffs on construction materials and imported goods pose a significant risk to commercial office buildings by increasing development and maintenance costs, potentially reducing profitability and delaying project timelines.

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Risks Associated with Debt Financing

Our use of debt will reduce cash available for distributions and may expose us to the risk of default under our debt obligations.

Payments of principal and interest on our borrowings may leave us with insufficient cash resources to operate our properties or to pay in cash the distributions necessary to qualify and maintain our REIT qualification. Our level of debt and the limitations imposed by our debt agreements may have substantial consequences, including the following:

Our financial condition, results of operations, and cash flow and our ability to satisfy our debt service obligations and to pay distributions to our stockholders could be adversely affected if one or more of these events were to occur.

We may incur mortgage indebtedness and other borrowings, which increases our risk of loss due to foreclosure.

We may obtain lines of credit and long-term financing that may be secured by our properties and other assets. In some instances, we may acquire real properties by financing a portion of the price of the properties and mortgaging or pledging some or all of the properties purchased as security for that debt. We may also incur mortgage debt on properties that we already own in order to obtain funds to acquire additional properties. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the dividends paid deduction and excluding net capital gain). We, however, can give no assurance that we will be able to obtain such borrowings on satisfactory terms.

If we mortgage a property and there is a shortfall between the cash flow from that property and the cash flow needed to service mortgage debt on that property, then the amount of cash available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, reducing the value of your investment. For tax purposes, a foreclosure of any of our properties 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, then we would recognize taxable income on foreclosure even though we would not necessarily receive any cash proceeds. We may give full or partial guaranties to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, then a default on a single property could affect multiple properties.

We may also obtain recourse debt to finance our acquisitions and meet our REIT distribution requirements. If we have insufficient income to service our recourse debt obligations, then our lenders could institute proceedings against us to foreclose upon our assets. If a lender successfully forecloses upon any of our assets, then our ability to pay cash distributions to our stockholders will be limited and our stockholders could lose all or part of their investment.

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High mortgage interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make.

If mortgage debt is unavailable at reasonable interest rates, then we may not be able to finance the purchase of properties. If we place mortgage debt on properties, then we run the risk of being unable to refinance the properties when the loans become due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, then our income could be reduced. If any of these events occur, then our cash flow would be reduced. This, in turn, would reduce cash available for distribution to stockholders and could hinder our ability to raise more capital by issuing more stock or by borrowing more money.

We may not be able to access financing sources on attractive terms, which could adversely affect our ability to execute our business plan.

We may finance our assets over the long term through a variety of means, including credit facilities and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond our control, including lack of liquidity and greater credit spreads. If our strategy is not viable, then we will have to find alternative forms of long-term financing for our assets. This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders and funds available for operations, as well as for future business opportunities. Additionally, we may need to purchase a swap or cap, interest rate protection instrument, to hedge against higher interest rates. These instruments are usually expensive. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage or replace our advisor. These or other limitations may limit our flexibility and our ability to achieve our operating plans.

Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

We expect that we will incur indebtedness in the future. Increases in interest rates may increase our interest costs, which would reduce our cash flows and our ability to pay distributions. In addition, if we need to repay existing debt during periods of higher interest rates, we might have to sell one or more of our investments in order to repay the debt, which sale at that time might not permit realization of the maximum return on such investments.

We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and decrease the value of your investment.

Our charter limits our leverage to 300% of our net assets and the Board has adopted a policy that our debt financing will be approximately 50% of the aggregate costs of our investments but we may exceed this limit with the approval of the independent directors of the Board. High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investments.

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Federal Income Tax Risks

Failure to qualify as a REIT would reduce our net earnings available for investment or distribution.

We expect to operate so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Notwithstanding the availability of cure provisions in the Internal Revenue Code, various compliance requirements could be failed and could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:  

Legislative, regulatory or administrative changes could adversely affect us or our stockholders.

Legislative, regulatory or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect us and/or our stockholders.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. In addition to reducing corporate and non-corporate tax rates, the Tax Cuts and Jobs Act eliminates or restricts various deductions. Most of the changes applicable to individuals are temporary and would apply only to taxable years beginning after December 31, 2017, and before January 1, 2026. The Tax Cuts and Jobs Act makes numerous large and small changes to the tax rules that do not affect REITs directly but may affect our stockholders and may indirectly affect us.

While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Internal Revenue Code may have unanticipated effects on us or our stockholders. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that will have to be reviewed in subsequent tax legislation. At this point, it is not clear when Congress will address these issues or when the Internal Revenue Service will issue administrative guidance on the changes made in the Tax Cuts and Jobs Act.

Stockholders should consult with their tax advisors with respect to the status of the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals and their potential effect on investment in our common stock.

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To maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions.

To qualify as a REIT, we generally must distribute annually to our stockholders a minimum of 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains. Our REIT taxable income will include our allocable share of any partnerships (including investment funds and joint ventures that are treated as partnerships for federal income tax purposes) without regard to the amount, if any, of distributions we receive from such partnerships. We will be subject to regular corporate income taxes on any undistributed REIT taxable income each year. Additionally, we will be subject to a 4% nondeductible excise tax on any amount by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from previous years. Payments we make to our stockholders under our share repurchase plan will not be taken into account for purposes of these distribution requirements. If we do not have sufficient cash to make distributions necessary to preserve our REIT status for any year or to avoid taxation, then we could be forced to borrow funds or sell assets even if the market conditions at that time are not favorable for these borrowings or sales.

Compliance with REIT requirements may cause us to forego otherwise attractive opportunities, which may hinder or delay our ability to meet our investment objectives and reduce your overall return.

To qualify as a REIT, we are required at all times to satisfy tests relating to, among other things, the sources of our income, the nature and diversification of our assets, the ownership of our stock and the amounts we distribute to our stockholders. Compliance with the REIT requirements may impair our ability to operate solely on the basis of maximizing profits. For example, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution.

Compliance with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, at the end of each calendar quarter, at least 75% 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 qualified real estate assets and government securities) generally cannot include more than 10% of the voting securities of any one issuer or more than 10% of the value of the outstanding securities of any one issuer unless we and such issuer jointly elect for such issuer to be treated as a “taxable REIT subsidiary” under the Internal Revenue Code. Additionally, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our assets may be represented by securities of one or more taxable REIT subsidiaries and not more than 25% of our assets may be represented by non-qualified publicly offered REIT debt instruments. If we fail to comply with these requirements, then we would be required to dispose a portion of our assets within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences. In order to satisfy these requirements, we may be forced to liquidate otherwise attractive investments.

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Our charter will not permit any person or group to own more than 9.8% of our outstanding common stock or of our outstanding capital stock of all classes or series, and attempts to acquire our common stock or our capital stock of all other classes or series in excess of these 9.8% limits would not be effective without an exemption from these limits by the Board.

In order to qualify as a REIT under the Internal Revenue Code, not more than 50% of the value of the outstanding shares of our stock may be owned directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) at any time during the last half of each taxable year after the first year for which we elect to qualify as a REIT. Our charter prohibits (unless otherwise permitted by the Board) beneficial or constructive ownership by any person or group of more than 9.8%, in value or by number of shares, whichever is more restrictive, of the outstanding shares of our common stock or 9.8% in value or number of shares, whichever is more restrictive of our outstanding capital stock of all classes or series, which we refer to as the “ownership limits.” The constructive ownership rules under the Internal Revenue Code and our charter are complex and may cause shares of our stock owned by a group of related persons to be deemed to be constructively owned by one person. As a result, the acquisition of less than 9.8% of our outstanding capital stock by a person could cause another person to own constructively in excess of 9.8% of the outstanding shares of our capital stock and thus violate the ownership limits. There can be no assurance that the Board, as permitted in the charter, will not decrease the ownership limits in the future. Any attempt to own or transfer shares of our capital stock in excess of an ownership limit without the consent of the Board would result either in the shares in excess of the limit being transferred by operation of the charter to a charitable trust, and the person who attempted to acquire such excess shares will not have any rights in such excess shares, or in the transfer being void.

The ownership limits may have the effect of precluding a change in control of us by a third party, even if such change in control would be in the best interests of our stockholders or would result in receipt of a premium to the price of our common stock (and even if such change in control would not reasonably jeopardize our REIT status).

We may incur tax liabilities that would reduce our cash available for distribution to you.

Even if we qualify and maintain our status as a REIT, we may become subject to U.S. federal income taxes and related state and local taxes. For example, any gain from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Internal Revenue Code) will be subject to a 100% tax on the gain. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our investments and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also may be subject to state and local taxes on our income or property, including franchise, payroll, mortgage recording and transfer taxes, either directly or at the level of the other companies through which we indirectly own our assets, such as our taxable REIT subsidiaries, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to you. In the event that a property is sold, gain is realized, but the cash is needed internally and can't be distributed to investors, a tax liability is incurred.

The Board is authorized to revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders.

Our charter authorizes the Board to revoke or otherwise terminate our REIT election without the approval of our stockholders if the board determines that it is no longer in our best interests to qualify as a REIT. the Board has statutory duties to us and could cause such changes in our tax treatment only if it determines in good faith that such changes are in our best interests. In this event, we would become subject to U.S. federal income tax on our taxable income, and we would no longer be required to distribute most of our net income to our stockholders, which may cause a reduction in the total return to our stockholders.

You may have current tax liability on distributions you elect to reinvest in our common stock.

If you participate in our distribution reinvestment plan, then you will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. Therefore, you could be forced to use funds from other sources to pay your tax liability on the reinvested dividends unless you are a tax-exempt entity.

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Generally, ordinary dividends payable by REITs do not qualify for reduced U.S. federal income tax rates.

The maximum tax rate applicable to qualified dividend income payable to certain non-corporate U.S. stockholders has been reduced by legislation to 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates applicable to qualified dividends. The more favorable rates applicable to regular corporate qualified dividends could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends even taking into account the lower 37% maximum rate for ordinary income and the 20% deduction for ordinary REIT dividends received in taxable years beginning after December 31, 2017 and before January 1, 2026, which could adversely affect the value of the shares of REITs, including our common stock.

If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, then we would cease to qualify as a REIT.

If the IRS were to successfully challenge the status of our operating partnership as a partnership or disregarded entity for U.S. federal income tax purposes, then we would be taxed as a corporation for federal income tax purposes. In the event that this were to occur, it would reduce the number of distributions that the operating partnership could make to us. This would also result in our failing to qualify as a REIT and becoming subject to a corporate-level tax on our income, which would substantially reduce our cash available to pay distributions and the yield on your investment.

Taxable REIT subsidiaries (TRSs) are subject to special rules that may result in increased taxes.

We may conduct certain activities or invest in assets through one or more TRSs. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. Other than some activities relating to hotel and health care properties, a TRS may generally engage in any business, including the provision of services to tenants of its parent REIT. A TRS is subject to U.S. federal income tax as a regular C corporation.

No more than 20% of the value of our total assets may consist of stock or securities of one or more TRSs. This requirement limits the extent to which we can conduct our activities through TRSs. The values of some of our assets, including assets that we hold through TRSs, may not be subject to precise determination, and values are subject to change in the future. Furthermore, if a REIT lends money to a TRS, then the TRS may be unable to deduct all or a portion of the interest paid to the REIT, which could increase the tax liability of the TRS. In addition, as a REIT, we must pay a 100% penalty tax on certain payments that we receive if the economic arrangements between us and any of our TRSs are not comparable to similar arrangements between unrelated parties. We intend to structure transactions with any TRS on terms that we believe are arm’s length to avoid incurring the 100% excise tax described above; however, the IRS may successfully assert that the economic arrangements of any of our inter-company transactions are not comparable to similar arrangements between unrelated parties.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate risk will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if: (1) the instrument (A) hedges interest rate risk or foreign currency exposure on liabilities used to carry or acquire real estate assets, (B) hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income tests or (C) hedges a position entered into pursuant to clause (A) or (B) after the extinguishment of such liability or disposition of the asset producing such income; and (2) such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRS.

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Retirement Plan Risks

You could be subject to criminal and civil penalties if you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock.

There are special considerations that apply to employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA (such as pension, stock bonus, profit-sharing or 401(k) plans), and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRAs or annuities described in Sections 408 or 408A of the Internal Revenue Code, annuities described in Sections 403(a) or (b) of the Internal Revenue Code, Archer MSAs described in Section 220(d) of the Internal Revenue Code, health savings accounts described in Section 223(d) of the Internal Revenue Code and Coverdell education savings accounts described in Section 530 of the Internal Revenue Code) whose assets are being invested in our common stock.

If you invest the assets of such a plan or arrangement in our common stock, then you should consider whether:

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You should consider whether your investment in us will cause some or all of our assets to be considered assets of an employee benefit plan, IRA, or other arrangement. We do not believe that under ERISA and U.S. Department of Labor regulations currently in effect that our assets would be treated as “plan assets” for purposes of ERISA, although there can be no assurances. However, if our assets were considered to be plan assets, then transactions involving our assets would be subject to ERISA and Section 4975 of the Internal Revenue Code and some of the transactions we have entered into with our advisor and its affiliates could be considered “prohibited transactions,” under ERISA or the Internal Revenue Code. If such transactions were considered “prohibited transactions,” then our advisor and its affiliates could be subject to liabilities and excise taxes or penalties. In addition, our officers and directors, our advisor and its affiliates could be deemed to be fiduciaries under ERISA, subject to other conditions, restrictions and prohibitions under Part 4 of Title I of ERISA and those serving as fiduciaries of plans investing in us may be considered to have improperly delegated fiduciary duties to us. Additionally, other transactions with “parties-in-interest” or “disqualified persons” with respect to an investing plan might be prohibited under ERISA, the Internal Revenue Code or other governing authority in the case of a government plan. Therefore, we would be operating under a burdensome regulatory regime that could limit or restrict investments we can make or our management of our real estate assets. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to an employee benefit plan purchasing shares and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of your plan or IRA, you should not purchase shares unless an administrative or statutory exemption applies to your purchase.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal (if the violation was willful) penalties and can subject the responsible fiduciaries to claims for damages or for equitable remedies. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Internal Revenue Code, then the “party-in-interest” or “disqualified person” who engaged in the prohibited transaction may be subject to the imposition of excise taxes with respect to the amount involved, and for IRAs or other arrangements, the tax-exempt status of the IRA or other arrangement may be lost. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subjected to tax. Plans that are not subject to ERISA or the prohibited transactions of the Internal Revenue Code, such as government plans or church plans, may be subject to similar requirements under state law. Such plans should satisfy themselves that the investment satisfies applicable law.

Item 1B.    Unresolved Staff Comments

None.

Item 1C.    Cybersecurity

The Company relies on information technology systems and third-party service providers to support various aspects of its operations, including accounting, financial reporting, property management, communications, and administrative functions.

Like other companies, the Company may be subject to cybersecurity risks and incidents, including unauthorized access to systems or data, ransomware, phishing attempts, malware, data breaches, denial-of-service attacks, and other information security events. Cybersecurity incidents affecting the Company or its third-party service providers could adversely affect the Company’s operations, financial reporting processes, or confidential information and could result in operational disruption, reputational harm, remediation costs, regulatory scrutiny, litigation, or other adverse effects.

The Company considers cybersecurity risks as part of its overall risk management and internal control processes. The Company utilizes various administrative, technical, and operational measures intended to assist in protecting its information systems and data, including user access controls, password protection measures, data backup procedures, periodic software updates, and the use of third-party technology service providers.

The Company’s processes for assessing, identifying, and managing material risks from cybersecurity threats include consideration of risks associated with both internally managed systems and third-party service providers utilized in the Company’s operations. The Company may engage third-party service providers or advisors, as appropriate, in connection with information technology and cybersecurity matters.

As of December 31, 2024, the Company had not identified any cybersecurity incidents that materially affected, or are reasonably likely to materially affect, the Company’s business strategy, results of operations, or financial condition. However, there can be no assurance that the Company will not experience cybersecurity incidents in the future.

Management is responsible for assessing and addressing cybersecurity risks as part of the Company’s overall risk management processes. The Board oversees the Company’s overall risk management activities, including risks relating to information technology and cybersecurity matters.

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Item 2. Properties

As of December 31, 2023, our investments in real estate assets consisted of (1) 10 wholly owned properties, (2) an 83% (approximate) tenant in common interest in an office property, (3) a 2.47% interest in an affiliate special purpose entity that owned as of December 31, 2023, 39 office, retail and light industrial properties in Houston, Dallas, and San Antonio, Texas, which we refer to as Hartman SPE LLC, and (4) an equity investment in an affiliated REIT.

The following table sets forth certain information relating to our properties, by commercial property type, as of December 31, 2023:

(1) We own an approximately 83% tenant in common interest in this office property.

On August 23, 2024, the Company completed the sale of Richardson Tech Center for $10,261,000. The property was acquired in March 2018 for $5,040,000. Proceeds from the sale were used to pay down the line of credit that we have with East West Bank by $9,337,000 and to fund a Capital Reserve account with East West Bank for $500,000. Other closing costs were covered with the remainder of the funds.

As of December 31, 2024, our investments in real estate assets consisted of (1) nine wholly owned properties, (2) an 83% (approximate) tenant in common interest in an office property, (3) a 2.47% interest in an affiliate special purpose entity that owned as of December 31, 2024, 39 office, retail and light industrial properties in Houston, Dallas, and San Antonio, Texas, which we refer to as Hartman SPE LLC, and (4) an equity investment in an affiliated REIT.

The following table sets forth certain information relating to our properties, by commercial property type, as of December 31, 2024:

(1) We own an approximately 83% tenant in common interest in this office property.

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Item 3.    Legal Proceedings

During February 2021, the state of Texas experienced a severe winter storm, unofficially referred to as Winter Storm Uri, which resulted in power outages and electrical grid failures across the state. Wholesale prices for electricity increased significantly during this period. As a result, we experienced a substantial increase in electricity charges for some of our properties during the month of and after the storm.

On May 26, 2021, Summer Energy LLC (“Summer”) filed a lawsuit against Hartman Income REIT Management, Inc., the former Property Manager, an affiliate of the Silver Star that managed our properties, in state court in Harris County, Texas. In this lawsuit, Summer seeks to collect approximately $8,400,000 from the Property Manager that Summer claims that the Property Manager owes Summer under one or more electricity sales agreements (“Agreements”) related to Winter Storm Uri. Of the approximately $8,400,000 claimed in the lawsuit, approximately $800,000 relates to wholly owned properties of the Company. Under the Agreements, Summer provided electricity to buildings managed by the Property Manager at indexed prices.

On March 24, 2022, the court entered a judgment in favor of Summer against the Property Manager in the amount of $7,871,000 plus customary pre- and post-judgment interest and attorney's fees. The Property Manager disputed the amount of liability to Summer and has appealed the judgment. The Company recognized the share of the judgment amount applicable to wholly owned properties of the Company, approximately $750,000, within the Company's consolidated statement of operations for fiscal year 2021.

On April 25, 2022, the Property Manager filed its supersedeas surety bond totaling $2,197,000 in order to suspend enforcement the judgment for the duration of the Property Manager's appeal. The share of the supersedeas surety bond applicable to wholly owned properties of the Company totaled $196,000 and is recorded in prepaid expenses and other assets on the Company's consolidated balance sheets.

On May 10, 2024, the lawsuit was dismissed upon appeal.

In 2023, the Company filed suit in the District Court of Harris County, Texas against Silver Star, Hartman Income REIT Property Holdings, LLC, Hartman XXI Advisors, LLC, Silver Star Property Management, Inc., Hartman SPE, LLC, Hartman Income REIT, Inc. and Hartman Retail I, DST. This suit includes claims for: (1) Silver Star’s breach of contract related to two loans from the Company to Silver Star; breach of contract by defendants related to Mr. Hartman’s Executive Chair Agreement; defamation; tortious interference; failure to return to the Company certain documents and information; and a request for a declaratory judgment that the Company and Mr. Hartman did not breach any fiduciary duties owed to Defendants.

On September 28, 2023, Hartman SPE, LLC sued the Company in the United States Bankruptcy Court for the District of Delaware in which it asked the court to (1) declare that the Company did not have an ownership interest in certain assets of Hartman SPE, LLC and (2) discharge lis pendens filed by the Company with respect to those assets. On November 21, 2023, following the Company’s recordation of releases of the lis pendens, the court granted the parties’ request for a stipulated final judgment that the Company has no direct interest in Hartman SPE, LLC’s assets and that the lis pendens are discharged. There was no material impact to the Company regarding this lawsuit.

On October 19, 2023, the Company joined Allen R. Hartman in a lawsuit filed in the Circuit Court for Baltimore City, Maryland against Silver Star and its directors other than Mr. Hartman, which was originally filed by Mr. Hartman for the purpose of compelling an annual meeting of stockholders of Silver Star. In this litigation, the Company and Mr. Hartman additionally asked the court to (1) compel Silver Star to provide them with a copy of Silver Star’s stock ledger, (2) declare void and unenforceable a purported amendment to Silver Star’s bylaws that allows Silver Star’s directors to be elected by less than all of its stockholders through a consent solicitation, and (3) compel Silver Star’s board of directors to liquidate Silver Star in accordance with a provision of its charter. On November 12, 2024, the court granted Silver Star’s request to dismiss the Company as a party to the litigation.

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Later in 2023, Silver Star filed a separate counter-suit against the Company and Allen Hartman, Individually and as trustee for the Hartman Family Protection Trust; Lisa Hartman, individually and as trustee for the Hartman Family Protection Trust; Margaret Hartman; Hartman vREIT XXI, Inc; and Hartman XX Holdings, Inc; in the District Court for Harris County, Texas. This suit includes claims against the Company and the other defendants for fraud, breach of fiduciary duty, tortious interference, and negligent misrepresentation related to the lawsuit that we filed against them for collecting on a note receivable. The Company believes that the claims of fraud, breach of fiduciary duty, tortious interference, and negligent misrepresentation have no merit. Because both suits are overlapping claims, the two suits were consolidated into the first filed suit. Discovery is ongoing. 

     On January 31, 2025, Shareholder Frank Gardner filed a derivative suit in the District Court for Harris County, Texas on behalf of all stockholders against several officers and directors of the Company, including Louis Fox, Allen Hartman, John Ostroot, J. Allen Quine, Richard Ruskey, and Jack Tompkins, and Silver Star. The Company is a nominal defendant in this derivative suit. Plaintiff’s claims include breach of fiduciary duty, waste and unjust enrichment. This claim of breach of fiduciary duty by the then Board of Directors of the Company asserts that the directors should not have authorized the Company to make unsecured loans totaling $15,336,000 to Silver Star. Discovery on this case has not yet commenced.

    Notes Receivable and Litigation Risk

    The Company holds a note receivable from Silver Star with an outstanding principal balance of approximately $15.3 million, excluding accrued interest.   

   The Company continues to assert its contractual rights with respect to the outstanding balance and is actively pursuing recovery through ongoing litigation. Management’s position is based on the legal enforceability of the note receivable and the Company’s contractual rights under the governing agreements. At the same time, due to the ongoing legal proceedings described in Note 12 – Litigation, the Company has recorded a full allowance for credit losses in accordance with ASC 326 based on its assessment of expected credit losses and the range of possible outcomes.

    The recorded allowance represents an accounting estimate and does not constitute a legal determination regarding the enforceability or ultimate collectability of the note. The Company continues to actively pursue recovery of the full contractual amount through the legal process.

Item 4.    Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stockholder Information

 March 31, 2026, the number of shares outstanding of each of our classes of common stock were: (1) 8,713,819 shares of Class A common stock held by 1,502 stockholders of record; (2) 503,255 shares of Class T common stock held by 104 stockholders of record; (3) 38,198 shares of Class I common stock held by seven stockholders of record; and 19,708 shares of Class S common stock held by three stockholders of record.

Market Information

Our shares of common stock are not currently listed on a national securities exchange or quoted or traded on any over-the-counter market. We do not expect our shares of common stock to become so listed, quoted or traded in the foreseeable future.

The Board has determined an estimated net asset value per share for our common stock as of December 31, 2022, December 31, 2023 and December 31, 2024 of $7.97 per share, $9.78 per share and $9.83 per share, respectively. The Board’ objective in determining the estimated net asset values per share was to arrive at values, based on the most recent data available, that it believed was reasonable based on methodologies that it deemed appropriate after consultation with our advisor. However, the market for commercial real estate can fluctuate quickly and substantially and the value of our assets is expected to change in the future and may decrease. Also, the Board did not consider certain other factors, such as a liquidity discount to reflect the fact that our shares are not currently traded on a national securities exchange and the limitations on the ability to redeem shares pursuant to our share repurchase plan.

As with any valuation method, the methods used to determine the estimated net asset values per share were based upon a number of assumptions, estimates and judgments that may not be accurate or complete. Our assets have been valued based upon appraisal standards and the values of our assets using these methods are not required to be a reflection of market value under those standards and will not necessarily result in a reflection of fair value under accounting principles generally accepted in the United States ("GAAP"). Further, different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated net asset value per share, which could be significantly different from the estimated net asset values per share determined by the Board. The estimated net asset values per share is not a representation or indication that, among other things: a stockholder would be able to realize the estimated values per share if he or she attempts to sell shares; a stockholder would ultimately realize distributions per share equal to the estimated values per share upon liquidation of assets and settlement of our liabilities or upon a sale of our company; shares of our common stock would trade at the estimated net asset values per share on a national securities exchange; a third party would offer the estimated net asset values per share in an arms-length transaction to purchase all or substantially all of our shares of common stock; or the methodologies used to estimate the net asset values per share would be acceptable to FINRA or ERISA with respect to their respective requirements. Further, the estimated net asset values per share were calculated as of a moment in time and the value of our shares will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets, developments related to individual assets and changes in the real estate and capital markets.

We intend to determine updated estimated fair values per share every year on or about the last day of our fiscal year or more frequently in the sole discretion of the Board. The market for commercial real estate can fluctuate quickly and substantially, and values of our assets and liabilities are expected to change in the future.

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Equity Compensation Plan Information

Pursuant to the SEC’s Regulation S-K Compliance and Disclosure Interpretation 106.01, the information regarding the Corporation’s equity compensation plans required by this Item pursuant to Item 201(d) of Regulation S-K is located in Item 12 of Part III of this Annual Report and is incorporated herein by reference.

Distribution Policy

To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to annually distribute at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP to our stockholders. The Board may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as the Board deems relevant.

For federal income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain distributions or nontaxable distributions. To the extent that we make distributions in excess of our current or accumulated earnings and profits, the distribution will be a nontaxable return of capital which reduces the tax basis of each share of common stock held by a U.S. stockholder. The amount of distributions in excess of a U.S. stockholder’s tax basis will be a taxable gain realized upon the sale of the stockholders’ shares.

The following table reflects the total distributions the Company has paid in cash, stock and pursuant to our distribution reinvestment plan for the years ended December 31, 2024, 2023 and 2022, in thousands:

Issuer Purchases of Equity Securities

Neither the Company nor any of its affiliated purchasers (as defined in Rule 10b-118 promulgated under the Exchange Act) purchased any shares of common stock during the three-month periods ended December 31, 2024 or 2023.

Item 6.    Reserved.

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Hartman vREIT XXI, Inc. and the notes thereto included elsewhere in this Annual Report. See “Cautionary Note Regarding Forward Looking Statements” preceding Part I of this Annual Report.

Overview

We were formed as a Maryland corporation on September 3, 2015 to acquire, develop and operate a diverse portfolio of value-oriented commercial properties, including office, retail, industrial and warehouse properties, located primarily in Texas. We intend to acquire properties in which there is a significant potential for growth in income and value from re-tenanting, repositioning, redevelopment, and operational enhancements. We believe that real estate, and in particular commercial real estate, provides an excellent investment for those investors looking for diversification, income and wealth preservation and growth in their portfolio. We believe that we have significant experience in acquiring and managing these types of properties, largely through our relationships with our Sponsor and other affiliates.

Hartman Advisors II, LLC, which we refer to as our advisor, manages our day-to-day operations and our portfolio of properties and real estate-related assets, subject to certain limitations and restrictions. Our advisor sources and presents investment opportunities to the Board. Our advisor also provides investment management, marketing, investor relations and other administrative services on our behalf.

On May 30, 2023, after one short-term extension, the Company completed a refinancing combining the MCFA, the MCFA II, and the $2,250,000 term loan into one Master Credit Facility of $53,000,000.

On August 23, 2024, the Company completed the sale of Richardson Tech Center for $10,261,000, which was acquired in March 2018 for $5,040,000.

The proceeds were used to reduce the amount due under the 2023 Master Credit Facility to $42,861,000.

On August 13, 2025, the term of the 2023 Master Credit Facility was extended from its original maturity date of July 15, 2025 to July 15, 2027.

Management has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year of the issuance date of these consolidated financial statements, due to uncertainty about the ability to meet certain loan covenant requirements of the Master Credit Facility with East West Bank. However, management believes that the Company will be able to effectively manage day-to-day operations and meet these loan covenant requirements to remain in compliance, which is expected to mitigate the covenant issue within one year of the issuance date of these consolidated financial statements. See Note 13 (Subsequent Events) for additional information regarding loan extensions.

Upon extending our debt, we believe that we will have sufficient capital to meet our existing debt service and other operating obligations for the next year and that we have adequate resources to fund our cash needs. While management has identified substantial doubt regarding our ability to continue as a going concern due to uncertainty around meeting certain loan covenant requirements under the Master Credit Facility with East West Bank, we believe we will be able to effectively manage day-to-day operations and maintain compliance with these covenants. This is expected to mitigate the covenant-related concerns within one year of the issuance date of these consolidated financial statements. However, our operations remain subject to a variety of risks, including, but not limited to, changes in national economic conditions, restricted financing availability, demographic shifts, interest rate fluctuations, and declining real estate valuations. As a result of these uncertainties, there can be no assurance that we will meet our investment objectives or that these risks will not adversely affect our properties or financial results.

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Substantially all of our business is conducted through Hartman vREIT XXI Operating Partnership, L.P., a Texas limited partnership, which we refer to as our operating partnership. We are the sole general partner of our operating partnership and Hartman vREIT XXI Holdings LLC, and Hartman vREIT XXI SLP, LLC, affiliates of our advisor, are the initial limited partners of our operating partnership. As we accept subscriptions for shares of our common stock, we will transfer substantially all of the net proceeds of the offering to our operating partnership as a capital contribution. The limited partnership agreement of our operating partnership provides that our operating partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that our operating partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended, which classification could result in our operating partnership being taxed as a corporation rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by our operating partnership in acquiring and operating our investments, our operating partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of our operating partnership. We will experience a relative increase in liquidity as additional subscriptions for shares of our common stock are received and a relative decrease in liquidity as offering proceeds are used to acquire and operate our assets.

We elected to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code beginning with our taxable year ended December 31, 2017. If we qualify as a REIT for federal income tax purposes, then 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, then we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied or lost. Failing to qualify as a REIT could materially and adversely affect our net income and results of operations.

Review of our Investment Policies

The Board, including our independent directors, has reviewed our investment policies as described in this Annual Report and determined that such policies are in the best interests of the Company based on the following factors: (1) such policies increase the likelihood that we will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in our portfolio; (2) our executive officers and directors and the affiliates of our advisor have expertise with the type of real estate investments we seek; (3) there are sufficient property acquisition opportunities with the attributes that we seek; and (4) borrowings should enable us to purchase assets and earn income more quickly, thereby increasing the likelihood of generating income for our stockholders and preserving stockholder capital.

Critical Accounting Policies and Estimates

General

We consider the accounting policies described below to be critical because they involve significant judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions is different, then it is possible that different accounting policies would be applied or different amounts of assets, liabilities, revenues and expenses would be recorded, resulting in a different presentation of the consolidated financial statements or different amounts reported in the consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

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    Allowance for Credit Losses (Notes Receivable)

    The Company holds a note receivable from Silver Star Properties REIT, Inc. (“Silver Star”) with an outstanding principal balance of approximately $15.3 million, excluding accrued interest, as of December 31, 2024 and 2023.

       In accordance with Financial Standards Accounting Board ("FASB") Accounting Standards Codification ("ASC") Topic 326, Financial Instruments—Credit Losses, the Company evaluates expected credit losses on financial assets measured at amortized cost using a forward-looking approach that incorporates historical experience, current conditions, and reasonable and supportable forecasts.

        During the year ended December 31, 2023, the Company recorded a full allowance for credit losses against the outstanding principal and related interest receivable associated with this note. During the year ended December 31, 2024, the Company recorded a full allowance for credit losses against related interest receivable associated with this note. This determination incorporates ongoing litigation and the range of potential resolution scenarios.

       While the Company firmly believes in the enforceability of its contractual rights and continues to actively pursue recovery of the full amount through legal proceedings and expects it to be paid in full, ASC 326 requires recognition of expected credit losses based on a probability-weighted assessment of potential outcomes. As a result, a full allowance for credit losses was recorded as of December 31, 2023.

        The recorded allowance represents an accounting estimate and does not constitute a legal determination regarding the enforceability or ultimate collectability of the note. The Company continues to actively pursue recovery of the full contractual amount through the legal process.

     The Company will continue to reassess this estimate in future reporting periods as additional information becomes available.

 Income Taxes

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing in the taxable year ended December 31, 2017. As a REIT we generally are not 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 after the year in which we initially elected to be treated as a REIT, then we would be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income. However, we believe that we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.

We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We record a valuation allowance for net deferred tax assets that are not expected to be realized.

For the years ended December 31, 2024, 2023 and 2022, we recorded a net income of $2,043,000, a net loss of $27,020,000 and a net loss of $1,930,000, respectively.  We do not anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward.  We consider that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements.

Management has reviewed our tax positions and is of the opinion that material positions taken by us would more likely than not be sustained upon examination.  Accordingly, we have not recognized a liability related to uncertain tax positions as of December 31, 2024, 2023 and 2022, respectively.

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Share Prices

       Effective December 31, 2024, December 31,2023 and December 31, 2022, the sale prices of our Class A, Class S, Class I and Class T common shares to the public were $9.83, $9.78 and $7.97 per share, respectively, representing the net asset value per share as determined by the board of directors plus the applicable sales commissions and managing broker dealer fees. 

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance focuses on providing more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. Pursuant to this ASU, the footnotes to the Company's consolidated financial statements may include incremental disclosures related to income taxes. This standard is effective for annual periods beginning after December 15, 2024, therefore, compliance with this ASU will be required beginning with the Company's Annual Report on Form 10-K for the year ended December 31, 2025, with early adoption permitted. The Company expects to adopt this ASU for its Annual Report on Form 10-K for the year ended December 31, 2025, and is continuing to research the impact of this amended guidance, however, does not expect this standard to have a material impact on its consolidated financial statements.

In November 2024 and January 2025, the FASB issued ASU No. 2024-03 and ASU No. 2025-01, respectively. Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("Update 2024-03"), which requires companies to disclose additional information for certain relevant expense categories in the Statements of Operations and within the notes to the financial statements. Update 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted and can be applied either prospectively to financial statements issued for reporting periods after the effective date, or retrospectively to prior periods which are presented in the financial statements. We are currently assessing the impact of the requirements on our consolidated financial statements and disclosures.

Inflation

Although inflation has been historically low and has had a minimal impact on the operating performance of our properties, inflation has recently increased in the United States. Monetary policy and stimulus measures implemented by the federal government and the Federal Reserve could lead to higher inflation rates or lengthen the period of inflation, which may negatively impact our tenants, our operating costs, and our construction costs. Our increased use of net lease agreements mitigates the adverse effect of inflation, including rent escalations and requirements for tenants to pay their allocable share of operating expenses, including common area maintenance, utilities, real estate taxes, and insurance. Additionally, many of our leases are for terms less than ten years, which allows us to target increased rents to current market rates upon renewal.

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Tariffs

Fluctuations in manufacturing activity in the U.S. may adversely affect our industrial tenants and therefore the demand for and profitability of any industrial properties we acquire. Trade agreements with foreign countries have given employers the option to utilize less expensive foreign manufacturing workers. Outsourcing manufacturing activities could reduce the demand for U.S. workers, thereby reducing the profitability of our industrial tenants and the demand for and profitability of our industrial properties.

Tariffs that raise costs for businesses can deter new tenants from leasing space in commercial office buildings, reducing occupancy rates and hindering the growth of commercial hubs. Tariffs on construction materials and imported goods pose a significant risk to commercial office buildings by increasing development and maintenance costs, potentially reducing profitability and delaying project timelines.

Impact of Credit Loss Provision

For the years ended December 31, 2024 and 2023, the Company recorded provisions for expected credit losses of $1.422 million and $21.557 million, respectively.

For 2023, the provision consisted of approximately $15.336 million related to the principal balance of the Silver Star note receivable, $2.852 million related to accrued interest on the Silver Star note receivable, and $1.971 million related to other outstanding related-party receivables, resulting in a total provision of $20.159 million.

For 2024, the Company recorded an additional provision of approximately $1.534 million related to accrued interest on the Silver Star note receivable, partially offset by a $112,000 reduction in the allowance for expected credit losses related to other related-party receivables, resulting in a net provision for expected credit losses of $1.422 million.

The provision reflects the application of ASC 326 and the requirement to incorporate forward-looking information and uncertainty into the measurement of expected credit losses. Recognition of the allowance does not affect the Company’s contractual rights or its ability to pursue recovery of the underlying receivables.

REIT Compliance

We elected to be taxed as a REIT under the Internal Revenue Code beginning with our taxable year ended December 31, 2017. To qualify as a REIT for tax purposes, we are required to distribute at least 90% of our REIT taxable income (determined for this purpose without regard to the dividends-paid deduction and excluding net capital gain) to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year following the taxable year in which we initially elect to be taxed as a REIT, then we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which our REIT qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. 

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Our Real Estate Investments

As of December 31, 2023, our investments in real estate assets consisted of ten properties listed below, a 2.47% interest in an affiliate special purpose entity that owned, 39 office, retail and light industrial properties in Houston, Dallas, and San Antonio, Texas, which we refer to as the Hartman SPE LLC, and an 83% (approximate) tenant in common interest in an office property located in Houston, Texas.

On August 23, 2024, the Company completed the sale of Richardson Tech Center, a premier four-building, multi-tenant portfolio located in the Dallas/Fort Worth area, for $10,261,000. The property was acquired in March 2018 for $5,040,000. Proceeds from the sale were used to pay down the line of credit that we have with East West Bank by $9,337,000 and fund a Capital Reserve account with East West Bank for $500,000. Other closing costs were covered with the remainder of the funds.

As of December 31, 2024, our investments in real estate assets consisted of nine properties listed below, a 2.47% interest in an affiliate special purpose entity that owned, 39 office, retail and light industrial properties in Houston, Dallas, and San Antonio, Texas, which we refer to as the Hartman SPE LLC, and an 83% (approximate) tenant in common interest in an office property located in Houston, Texas.

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Results of Operations

      As of December 31, 2024, we owned nine properties comprising approximately 780,735 square feet. As of December 31, 2023 and 2022, we owned 10 properties comprising approximately 822,971, and 879,741 square feet, respectively. As of December 31, 2024, 2023 and 2022, we owned a 2.47% interest in an affiliate special purpose entity which is referred to as the Hartman SPE interest. As of December 31, 2024, 2023 and 2022, we owned an 83% (approximate) tenant in common interest in an office property comprising approximately 78,289 square feet located at 3100 Weslayan Street in Houston, Texas, which was acquired on December 29, 2020.

Revenues – The primary source of our revenue is rental revenues. For the years ended December 31, 2024, 2023 and 2022 we had total rental revenues and tenant reimbursements $15,056,000, $15,824,000  and $13,461,000, respectively. The increase in 2023 was mainly due to increase in overall occupancy from 71% as of December 31, 2022 to 83% as of December 31, 2023.

Property operating expenses – Property operating expenses consist of contract services, repairs and maintenance, utilities and management fees. For the years ended December 31, 2024, 2023 and 2022 , we had property operating expenses of $5,831,000, $6,246,000 and $4,697,000 respectively. .

Fees to affiliates – We pay asset management fees to our advisor in connection with the management of our company. Asset management fees to our advisor were $540,000, $556,000 and $553,000 for each of the years ended December 31, 2024, 2023 and 2022, respectively. 

Real estate taxes and insurance – Real estate taxes and insurance were $2,953,000, $2,780,000 , and $2,370,000  for the years ended December 31, 2024, 2023 and 2022, respectively.

Depreciation and amortization – Depreciation and amortization were $2,979,000, $3,275,000 and $4,313,000 for the years ended December 31, 2024, 2023 and 2022, respectively. The decrease in 2024 when compared to 2023 was primarily related to a decrease in amortization expense of our in-place lease value intangibles, which typically have a shorter useful life compared to other real estate asset components resulting in a decrease in depreciation expense.

Equity in losses (income) of tenant-in-common interest - Equity in net loss (income) of tenant in common interest was $410,000, ($6,000), and $330,000 for the years ended December 31, 2024, 2023 and 2022, respectively. 

General and administrative – General and administrative expenses were $2,654,000, $1,712,000 and $1,981,000 for the years ended December 31, 2024, 2023 and 2022, respectively. General and administrative expenses consist primarily of audit fees, transfer agent fees, other professional fees, and independent director’s compensation. The increase in general and administrative expenses in 2024 was primarily due to increase in professional fees.

Interest expense - Interest expense was $4,180,000, $5,171,000 and $2,595,000 for the years ended December 31, 2024, 2023 and 2022, respectively. The increase in 2023 was primarily due to an overall increase in notes payable and interest rates from December 31, 2022 to December 31, 2023.

Interest and dividend income - Interest and dividend income was $2,901,000, $2,117,000 and $1,991,000 for the years ended December 31, 2024, 2023 and 2022 respectively. The movements in 2024 and 2023 were primarily due to additions to related party notes receivable, offset with a reduction of dividend income as Silver Star Properties suspended distributions to its stockholders, including the Company, in July 2022. The increase in year 2023 as compared to year 2022 was due to recalculation of interest income of year 2019 and 2023 and recording the difference of $3,016,000 in year 2023. In year 2024, we received dividend income of $830,000 from Hartman SPE LLC.

Credit Loss Provision - For the years ended December 31, 2024 and 2023, the Company recorded provisions for expected credit losses related to the Silver Star note receivable. In 2024, the Company recorded a provision of $1,534,000 related to accrued interest. In 2023, the Company recorded provisions against the outstanding principal and accrued interest balances of $15,336,000 and $2,852,000, respectively, resulting in significant non-cash charges to earnings.

The Company continues to assert its contractual rights with respect to the outstanding balance and is actively pursuing recovery through ongoing litigation. Management’s position is based on the legal enforceability of the note receivable and the Company’s contractual rights under the governing agreements. At the same time, due to the ongoing legal proceedings described in Note 12 – Litigation, the Company has recorded a full allowance for credit losses in accordance with ASC 326 based on its assessment of expected credit losses and the range of possible outcomes.

The recorded allowance represents an accounting estimate and does not constitute a legal determination regarding the enforceability or ultimate collectability of the note. The Company continues to actively pursue recovery of the full contractual amount through the legal process.

The Company will continue to reassess this estimate in future reporting periods as additional information becomes available.

Net income (loss) – We recorded net income of $2,043,000 for the year ended December 31, 2024, compared to a net loss of $27,020,000 for the year ended December 31, 2023, and a net loss of $1,930,000 for the year ended December 31, 2022. The net loss in 2023 was driven primarily by a $20,159,000  provision for expected credit losses related to notes receivable, accrued interest thereon, and related-party balances. The provision decreased to $1,422,000 in 2024, a decrease of $18,737,000, representing the largest driver of the year-over-year improvement.

The Company also recognized a $5,560,000 gain on the sale of Richardson Tech Center in 2024. These favorable items were partially offset by a $$416,000 unfavorable change in equity in losses (income) from the Company's tenant-in-common interest, which moved from equity income of $6,000 in 2023 to an equity loss of $410,000 in 2024.

The Company also recorded a $969,000 impairment loss on investments in unconsolidated entities in 2024, compared to a $5,068,000 impairment loss in 2023. Depreciation and amortization expense decreased by $296,000, and interest expense decreased by $991,000 in 2024, as further discussed above. Together, these factors resulted in net income in 2024, compared to net losses in 2023 and 2022.

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Liquidity and Capital Resources

Through our stock offerings, as of December 31, 2024 and December 31, 2023, we had accepted subscriptions for, and issued, 8,684,826 Class A Shares, net of redemptions, including 840,901 shares issued pursuant to our distribution reinvestment plan, 38,198 Class I Shares, 19,708 Class S Shares, and 503,255 Class T Shares, net of redemptions, including 40,380 shares issued pursuant to our distribution reinvestment plan, resulting in aggregate gross proceeds of $91,699,487. We were not engaged in any stock offerings as of December 31, 2024 or 2023.

Our principal demands for funds will be for real estate and real estate-related acquisitions, for the payment of operating expenses and distributions to our stockholders, and for the payment of interest on our outstanding indebtedness.  Generally, we expect to meet cash needs for items other than acquisitions from our cash flow from operations, and we expect to meet cash needs for acquisitions from the net proceeds of our initial public offering and from financings.

We intend to borrow money to acquire properties and make other investments. There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment.  Under our charter, we are prohibited from borrowing over 300% of the value of our “net assets” (as defined by our charter). However, we may temporarily exceed that limit if such excess is approved by a majority of our independent directors and if disclosed to the stockholders in the next quarterly report along with the explanation for such excess borrowings. In addition, the Board has adopted a policy to generally limit our aggregate borrowings to approximately 50% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests; provided, however, that such policy limitation does not apply to individual real estate assets and only will apply once we have ceased raising capital under our initial public offering or any subsequent public offering and invested substantially all of our capital. As a result, we expect to borrow more than 50% of the contract purchase price of each real estate asset we acquire to the extent the Board determines that borrowing these amounts is prudent.  Our policy of limiting our aggregate borrowings to approximately 50% of the aggregate value of our assets relates primarily to mortgage loans and other debt that will be secured by our properties. The charter limitation of 300% of the value of our net assets includes secured and unsecured indebtedness that we may issue. We do not anticipate issuing significant amounts of unsecured debt and therefore we intend to limit the balance of our borrowings to 50% of the contract purchase price of our assets.

We may, but are not required to, establish capital reserves from gross offering proceeds, out of cash flow generated by operating properties and other investments or out of non-liquidating net sale proceeds from the sale of our properties and other investments. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions and major capital expenditures. Alternatively, a lender may require its own formula for escrow of capital reserves.

Potential future sources of capital include proceeds from additional private or public offerings of our securities, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

Cash Flows from Operating Activities

For the years ended December 31, 2024, 2023 and 2022, net cash provided by (used in) operating activities were $2,480,000 , $1,184,000 and $4,898,000, respectively. 

Cash Used in Investing Activities

For the years ended December 31, 2024, 2023 and 2022, net cash provided by (used in) investing activities was $8,215,000, $667,000, and ($16,466,000), respectively. 

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Cash Flows from Financing Activities

Cash flows from financing activities consisted primarily of proceeds from our stock offerings and debt financing. Net cash provided by (used in) financing activities for the years ended December 31, 2024, 2023 and 2022 was $10,553,000, $252,000 and $12,130,000, respectively. Net cash used in financing activities in 2024 was primarily attributable to $10,647,000 of net repayments under the revolving credit facility, compared to $110,000 of net proceeds from the revolving credit facility in 2023.

Funds From Operations and Modified Funds From Operations

Funds From Operations, or FFO, is a non-GAAP financial measure defined by the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, which we believe is an appropriate supplemental measure to reflect the operating performance of a real estate investment trust, or REIT in conjunction with net income. FFO is used by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of its liquidity, or indicative of funds available to fund its cash needs including its ability to make distributions to its stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

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Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and as a result we may have to adjust our calculation and characterization of FFO or MFFO.

The table below summarizes our calculation of FFO and MFFO for the years ended December 31, 2024, 2023 and 2022, respectively, and a reconciliation of such non-GAAP financial performance measures to our net loss, in thousands.

Distributions

Effective December 16, 2022, the Board suspended the payment of monthly distributions to preserve capital and secure our financial health on an ongoing basis.

The following table reflects the total distributions paid in cash and issued in shares of our common stock for the period from January 01, 2022 through December 31, 2024, in thousands:

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Our long-term policy is to pay distributions solely from funds from operations. Because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period, and we expect to pay these distributions in advance of our actual receipt of these funds. In these instances, the Board has the authority under our organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by our advisor, in its sole discretion. We have not established a limit on the amount of proceeds we may use from sources other than cash flow from operations to fund distributions. If we pay distributions from sources other than cash flow from operations, then we will have fewer funds available for investments.

Off-Balance Sheet Arrangements

As of December 31, 2024, 2023 and 2022, we had no off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition or results of operations.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements. See Note 2 to the consolidated financial statements included elsewhere in this Annual Report.

Related-Party Transactions and Agreements

       We have entered into agreements with our advisor and its affiliates whereby we have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, our advisor and its affiliates. See Item 13 of Part III of this Annual Report and Note 9 (Related Party Arrangements) to the consolidated financial statements included in this Annual Report for a discussion of the various related-party transactions, agreements and fees.

Subsequent Events

       On August 13, 2025, the maturity date of the 2023 Master Credit Facility was extended from its original maturity date of July 15, 2025 to July 15, 2027.

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Item 7A.   Quantitative and Qualitative Disclosures About Market Risks

   Not required.

Item 8.     Financial Statements and Supplementary Data

   The consolidated financial statements and supplementary data required by this Item 8 can be found beginning on page F-1 of this Annual Report.

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On September 23, 2025, the Company received notice from Weaver and Tidwell, L.L.P. (“Weaver”), the Company’s then independent registered public accounting firm, that it would not stand for reappointment.  Weaver audited the Company’s consolidated financial statements for the fiscal years ended December 31, 2022 and 2021 and issued a report thereon dated August 22, 2025. 

Weaver’s audit report on the Company’s financial statements for the fiscal years ended December 31, 2022 and 2021 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

During the Company’s two most recent fiscal years and any subsequent interim period preceding Weaver’s declination, there were no disagreements with Weaver on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Weaver’s satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report.

In addition, during such periods there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K, except for the disclosure of material weaknesses in the Company’s internal control over financial reporting as described in Part II, Item 9A of the Company’s Annual Report on Form 10-K, as amended on Form 10-K/A, for the year ended December 31, 2022. These material weaknesses included (i) insufficiently designed or operating controls over the review, approval, and disclosure of related party transactions; (ii) deficiencies in the Company’s investment policy and related procedures regarding loans to affiliates, including lack of required Board approval; (iii) ineffective controls relating to the review and approval of the Form 10-K to ensure accurate, complete, and timely disclosures; and (iv) lack of controls to ensure appropriate recording of investments and related impairment during the year.

Effective October 14, 2024, the Company’s Audit Committee approved the engagement of M&K CPAS, PLLC (“M&K”) as the Company’s new independent registered public accounting firm to audit the Company’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023.

During the two most recent fiscal years and any subsequent interim period prior to the engagement of M&K, the Company did not consult with M&K regarding (i) the application of accounting principles to a specific completed or proposed transaction, (ii) the type of audit opinion that might be rendered on the Company’s financial statements, or (iii) any matter that was either the subject of a disagreement or a reportable event as defined in Item 304(a)(1)(iv) and (v) of Regulation S-K.

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Item 9A.     Controls and Procedures

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Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 15a-15(e) under the Exchange Act that are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer (the “PEO”) and our principal financial officer (the “PFO”), as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls or procedures, no matter how well designed it operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Pursuant to Item 308(b) of the SEC’s Regulation S-K, this Annual Report does not include an attestation report of the Company’s registered public accounting firm on the Corporation’s internal control over financial reporting because the Company is not an “accelerated filer” or a “large accelerated filer” as such terms are defined in Rule 12b-2 promulgated under the Exchange Act.

Management evaluated the effectiveness of the Company's disclosure controls and procedures as of December 31, 2024 and December 31, 2023. Based on these evaluations, management concluded that the Company's disclosure controls and procedures were not effective as of either date due to the material weaknesses in internal control over financial reporting discussed below under “Management's Report on Internal Control Over Financial Reporting.”

There was no change in our internal control over financial reporting during the three-month periods ended December 31, 2024 or 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has performed an evaluation and testing of our internal control over financial reporting as of December 31, 2024 and December 31, 2023. Management’s report on our internal control over financial reporting is as follows.

Management's Report on Internal Control Over Financial Reporting

       Management of Hartman vREIT XXI, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the board of directors, management and personnel, to provide reasonable assurance regarding the reliability of financial reporting in the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (GAAP) and include those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets;

• provide reasonable assurance the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of management and our directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of any of our assets in circumstances that could have a material adverse effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Management, including the Company’s principal executive officer and the Company’s principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act.

Management, with the participation of principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023 and December 31, 2024. In making that assessment, our management used the framework and criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on this evaluation, management concluded that our disclosure controls and procedures were not effective due to the existence of certain material weaknesses in internal control over financial reporting. As of December 31, 2023 and December 31, 2024, management identified that following deficiencies existed in the Company’s internal control as material weaknesses:

Controls related to the review, approval, and disclosure of related-party transactions, as well as controls over the timely preparation and review of financial information, including journal entries and the financial reporting close process, were not sufficiently designed or operating effectively to ensure the accuracy, completeness, and timeliness of the Company's financial reporting. These deficiencies were primarily attributable to limited accounting personnel and resources relative to the Company's reporting requirements, together with challenges associated with organizational transition activities, the reconstruction of historical accounting records, limitations in the availability of historical supporting documentation, and the implementation and enhancement of the Company's accounting and financial reporting processes. These factors resulted in insufficient segregation of duties and management review controls in certain areas of the financial reporting process.

Remediation Efforts:

Management has undertaken and continues to implement measures intended to strengthen the Company's internal control over financial reporting and disclosure controls and procedures. These measures include enhancing the Company's accounting and financial reporting processes, improving documentation and record retention procedures, strengthening management review controls, expanding accounting personnel and external professional resources supporting the financial reporting process, implementing additional review procedures over significant transactions and journal entries, and enhancing controls over related-party transactions and financial statement preparation.

In addition, management has continued efforts to reconstruct and validate historical accounting records, improve the quality and accessibility of supporting documentation, and further develop internal policies and procedures to support timely and accurate financial reporting. The Company also continues to evaluate opportunities to improve its accounting systems, internal processes, and overall control environment.

Dated: July 31, 2026

/s/ Allen R. Hartman

Allen R. Hartman

Executive Chairman, CEO, CODM, & Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

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Item 9B. Other Information

During the year ended December 31, 2024 and 2023, none of the Company’s directors or officers informed the Company of their adoption, modification, or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as those terms are defined in Item 408 of the SEC’s Regulation S-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions

Not Applicable.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

The following table sets forth information regarding our executive officers and directors and their respective ages and positions as of December 31, 2023.

(1) On April 7, 2023, the independent directors of the board of directors appointed Mr. Hartman as interim Chief Financial Officer and interim Treasurer.

The following table sets forth information regarding our executive officers and directors and their respective ages and positions as of December 31, 2024.

   The following table sets forth information regarding our executive officers and directors and their respective ages and positions as of the date of this Annual Report.

The biographical descriptions below set forth certain information with respect to the executive officers and directors named above.

Allen R. Hartman, age 74, is our CEO and Chairman of the Board as well as President of the parent company of our advisor, Hartman Advisors LLC, and our property manager, REIT Property Management, LLC. In 1984, Mr. Hartman formed Hartman Management and began Sponsoring private real estate investment programs. Over the next 24 years, Mr. Hartman built Hartman Management into one of the leading commercial property management firms in the state of Texas and Sponsored 20 privately offered programs and one publicly offered program that invested in commercial real estate in Houston, San Antonio and Dallas, Texas. In 1998, Mr. Hartman merged the Hartman real estate programs and formed Hartman Commercial Properties REIT (HCP REIT), now known as Whitestone REIT. He served as CEO and Chairman of the Board of HCP REIT until October, 2006. In April, 2008, Mr. Hartman merged 4 of the 5 Hartman programs to form Hartman Income REIT (HIREIT) and contributed the assets and ongoing business operations of Hartman Management into Hartman Income REIT Management, a wholly owned subsidiary of HIREIT. Mr. Hartman has acquired over 90 commercial real estate properties, raised over $300 million of investor equity and acquired more than $500 million in commercial real estate assets in various private and public real estate investment programs. Currently Mr. Hartman oversees a staff of 15 full and part time employees who manage 12 commercial properties encompassing over 1 million square feet. In addition to his day-to-day management responsibilities, Mr. Hartman serves as the principal officer of each Hartman Sponsored investment program. Mr. Hartman attended the University of Colorado and studied Business Administration. Mr. Hartman has served as a director of Silver Star since 2012.

The Board, excluding Mr. Hartman, has determined that the leadership positions previously and currently held by Mr. Hartman, and the extensive experience Mr. Hartman has accumulated from acquiring and managing investments in commercial real estate and debt, have provided Mr. Hartman with the experiences, attributes and skills necessary to effectively carry out the duties and responsibilities of a director.

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J. Allen Quine, has served as one of our independent directors since February 3, 2023. Mr. Quine has served as an attorney and negotiator in the business and non-profit sectors for over three decades. Most recently he served as in-house counsel and VP of International Relations for the Museum of the Bible in Washington DC. Mr. Quine was indispensable in establishing relationships and negotiating agreements with domestic and world-class international organizations by navigating the complexities of State, Federal, and international law. For several years Mr. Quine was the general counsel for a property investment and management company providing housing to over 21,000 tenants in multi-family locations. He conducted all legal matters, from property investment and ROI, tenant relations, HR, hiring of contractors, and third party service providers. Leveraging his legal experience, Mr. Quine has served as a College President, Dean, and Professor of several higher educational institutions, and currently applies his knowledge of the ever changing nature of State, Federal and International regulations and legal environment to the benefit of national and international business associations and non-profits. Mr. Quine is an alum of Washington State University and the University of Idaho College of Law. He was admitted to practice law in Washington State, and is currently a member of the State Bar of Texas.

The Board, excluding Mr. Quine, has determined that his experience and leadership positions previously and currently held by Mr. Quine, including his experience with respect to investments in commercial real estate, have provided Mr. Quine with the experiences, attributes and skills necessary to effectively carry out the duties and responsibilities of a director.

John Ostroot served on the Board as an independent director between February 2016 and May 31, 2025. Since January 2008 and July 2009, respectively, Mr. Ostroot served as an independent director of Hartman Income REIT, Inc. and Hartman Short Term Income Properties XIX, Inc. He was president of EGC Corporation and 3P USA Inc., subsidiaries of Plastic Omnium, Inc., a French-owned global leader in the processing of fluoropolymers and other high-performance resins plastics, from September 1994 until he retired in January 2000. As president of these companies, he actively supervised the principal accounting officers and was responsible for overseeing and assessing the performance of companies and public accountants in the preparation, audit and evaluation of financial statements on behalf of the company. After his retirement at 3P USA, Mr. Ostroot assumed a leadership role with the Fluoropolymers Division of the Society of Plastics Industries, a trade organization, consisting of processors and suppliers of fluoropolymer resin, headquartered in Washington, D.C. Presently, Mr. Ostroot is serving on the Fluoropolymers Division Executive Committee as Past Chairman. In April 2005, Mr. Ostroot received the Whitney Bro Lifetime Achievement Award from the DuPont Company for his more than 45 years in the Fluoropolymer industry. Since January 2008, Mr. Ostroot has served as a director of Hartman Income REIT, Inc., a private REIT affiliated with our Sponsor, and since July, 2009, Mr. Ostroot has served as an independent director of Hartman Short Term Income Properties XIX, Inc., a private REIT affiliated with our Sponsor. Mr. Ostroot earned a Bachelor of Science degree in Chemical Engineering from the University of Minnesota.

Board Committees

The Board may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full board of directors meeting, provided that the majority of the members of each committee are independent directors.

Audit Committee

The Board has established an audit committee, the members of which are Messrs. McFerrin and Quine. The audit committee’s function is to assist the Board in fulfilling its responsibilities by overseeing: (1) the systems of our internal accounting and financial controls; (2) our financial reporting processes; (3) the independence, objectivity and qualification of our independent Registered Public Accounting Firms; (4) the annual audit of our financial statements; and (5) our accounting policies and disclosures. The audit committee meets on a regular basis, at least quarterly and more frequently as necessary.

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The board of directors has determined that Mr. Quine qualifies as an “audit committee financial expert” as that term is defined by the SEC in Item 407 of Regulation S-K. 

Delinquent Section 16(a) Reports

Pursuant to Section 16(a) of the Exchange Act, the Company’s executive officers and directors, and persons who beneficially own more than 10% of our common stock, are required to file certain reports regarding their ownership of common stock with the SEC within specified time frames, including statements of ownership on Form 3 and reports of changes in ownership on Forms 4 and 5. These reports are also required to be furnished to the Company. Based solely on our review of such reports and written representations from reporting persons, the Company believes that all Section 16(a) filing requirements applicable during 2023 and 2024 were complied with, except that certain filings were not timely filed by individuals who beneficially owned more than 10% of the Company’s common stock. The Company is not aware of any late filings in any prior year that have not been previously reported.

       Code of Conduct and Ethics

We have adopted a Code of Ethics which contains general guidelines for conducting our business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to all of our officers, including our principal executive officer, principal financial officer and principal accounting officer and persons performing similar functions and all members of the Board. The Code of Ethics covers topics including, but not limited to, conflicts of interest, record keeping and reporting and compliance with laws, rules and regulations. We will provide to any person without charge a copy of our Code of Ethics, including any amendments or waivers, upon written request delivered to our principal executive office at the address listed on the cover page of this Annual Report.

Item 11.    Executive Compensation

Compensation of our Executive Officers

Our executive officers do not receive compensation directly from us for services rendered to us and we do not intend to pay any compensation to our executive officers. We do not reimburse our advisor directly or indirectly for the salary or other compensation paid to any of our executive officers. As a result, we do not have, nor has the Board considered, a compensation policy for our executive officers and we have not included a Compensation and Discussion Analysis in this Annual Report.

Each of our executive officers, including each executive officer who serves as a director, is an officer or employee of our advisor or its affiliates and receives compensation for his or her services, including services performed on our behalf, from such entities.  See Item 13, “Certain Relationships and Related Transactions and Director Independence” below for a discussion of fees paid to our advisor and its affiliates.

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Compensation of our Directors

The following table sets forth certain information regarding compensation earned by or paid to our directors during the year ended December 31, 2023. Directors who are also our executive officers do not receive compensation for services rendered as a director.

The following table sets forth certain information regarding compensation earned by or paid to our directors during the year ended December 31, 2024. Directors who are also our executive officers do not receive compensation for services rendered as a director.

Cash Compensation

We pay each of our independent directors an annual retainer of $25,000, plus $2,000 per Board meeting attended and $500 per committee meeting attended; provided, however, we do not pay an additional fee to our directors for attending a committee meeting when the committee meeting is held on the same day as a Board meeting. The Audit Committee chair receives $12,500 annually. We also reimburse all directors for reasonable out-of-pocket expenses incurred in connection with attending Board meetings. 

Independent Directors Compensation Plan

The Board has approved and adopted an independent director’s compensation plan, which operates as a sub-plan of our long-term incentive plan. Each new independent director that joins the Board will receive 4,000 shares of restricted common stock upon election to the Board. The shares of restricted common stock granted to our independent directors fully vest upon the completion of the annual term for which the director was elected. Directors serving on the board of directors of more than one entity sponsored by our Sponsor or its affiliates will receive an annual cash retainer, meeting fees and stock compensation for all board service as if they were serving on a single board.

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Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Beneficial Owners

          The following table sets forth information as of December 31, 2023 and December 31, 2024 relating to the beneficial ownership of our common Stock by each person who was serving as a director or an executive officer of the Company as of such date and (2) all such directors and executive officers of the Company as a group. We are not aware of any person or group that beneficially owned more than five percent of any class of the outstanding shares of our common stock as of December 31, 2023 and December 31, 2024. Generally, a person “beneficially owns” shares if he or she has, or shares with others, the right to vote those shares or to invest (or dispose of) those shares, or if he or she has the right to acquire such voting or investment rights, within 60 days of  December 31, 2023 and December 31, 2024  (such as by exercising stock options or similar rights). The address of each person named below is the address of the Company.

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The following table sets forth information as of March 31, 2026 relating to the beneficial ownership of our common Stock by (1) each person of our current directors and executive officers and (2) all such directors and executive officers as a group. We are not aware of any person or group that beneficially owned more than five percent of any class of the outstanding shares of our common stock as of such date. The address of each person named below is the address of the Company.

Securities Authorized for Issuance Under Equity Compensation Plans 

As discussed above in Item 11 of Part III, the Board has approved and adopted an independent director’s compensation plan, which operates as a sub-plan of our long-term incentive plan, that authorizes the Board to annually grant to our independent directors up to $50,000 in shares of time-vesting restricted shares of common stock. Each new independent director that joins the Board is entitled to receive 3,000 shares of time-vesting restricted common stock upon election to the Board. The shares vest upon the completion of the annual term for which the director was elected. 

The following table contains information as of December 31, 2023 regarding securities that are authorized for issuance under our long-term incentive plan:

(1)....

The following table contains information as of December 31, 2024 regarding securities that are authorized for issuance under our long-term incentive plan:

(1)

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Item 13.    Certain Relationships and Related Transactions and Director Independence

The following describes all transactions since January 1, 2023 involving us, our directors, our advisor, our Sponsor and any affiliate thereof and all such proposed transactions. See also Note 9 (Related Party Arrangements) to the consolidated financial statements included in this Annual Report. Our independent directors are specifically charged with and have examined the fairness of such transactions to our stockholders, and have determined that all such transactions are fair and reasonable to us.

Ownership Interests

As of December 31, 2024, Hartman XXI Holdings owned 100% of the outstanding limited partnership interests in our operating partnership and Hartman XXI SLP owned 100% of the special limited partnership interests issued by our operating partnership. We are the sole general partner of our operating partnership.

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Pursuant to the limited partnership agreement of our operating partnership, Hartman XXI SLP, as the holder of the special limited partnership interests, will be entitled to receive distributions equal to 15.0% of our operating partnership’s net sales proceeds from the disposition of assets, but only after our stockholders have received, in the aggregate, cumulative distributions equal to their total invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such aggregated invested capital. In addition, the holder of the special limited partnership interests is entitled to receive a payment upon the redemption of the special limited partnership interests. Pursuant to the limited partnership agreement of our operating partnership, the special limited partnership interests will be redeemed upon: (1) the listing of our common stock on a national securities exchange; (2) the occurrence of certain events that result in the termination or non-renewal of our advisory agreement with our advisor other than by us for “cause” (as defined in the advisory agreement); or (3) the termination of the advisory agreement by us for cause. In the event of the listing of our shares of common stock or a termination of the advisory agreement other than by us for cause, the special limited partnership interests will be redeemed for an aggregate amount equal to the amount that the holder of the special limited partnership interests would have been entitled to receive under the limited partnership agreement of our operating partnership if our operating partnership had disposed of all of its assets at their fair market value and all liabilities of our operating partnership had been satisfied in full according to their terms as of the date of the event triggering the redemption. Payment of the redemption price to the holder of the special limited partnership interests will be paid, at the holder’s discretion, in the form of (i) limited partnership interests in our operating partnership, (ii) shares of our common stock, or (iii) a non-interest bearing promissory note. If the event triggering the redemption is a listing of our shares on a national securities exchange only, then the fair market value of the assets of our operating partnership will be calculated taking into account the average share price of our shares for a specified period. If the event triggering the redemption is an underwritten public offering of our shares, then the fair market value will take into account the valuation of the shares as determined by the initial public offering price in such offering. If the triggering event of the redemption is the termination or non-renewal of the advisory agreement other than by us for cause for any other reason, then the fair market value of the assets of our operating partnership will be calculated based on an appraisal or valuation of our assets. In the event of the termination or non-renewal of the advisory agreement by us for cause, all of the special limited partnership interests will be redeemed by our operating partnership for the aggregate price of $1. As the holder of special limited partnership interests, Hartman XXI SLP is not entitled to receive any other distributions.

Our Relationships with our Advisor and our Property Manager

Hartman XXI Advisors, LLC was our advisor until April 16, 2023 and, as such, supervised and managed our day-to-day operations and selected our real property investments and real estate-related investments, subject to the oversight by the Board. Our advisor also provided marketing, sales and client services on our behalf. Our advisor was formed in September 2015 and is a wholly owned subsidiary of Hartman Advisors, LLC. Effective July 1, 2020, our advisor was owned by Silver Star. Effective July 1, 2020, Hartman Income REIT Management, Inc., our property manager and Sponsor, was owned by Silver Star as a result of a merger. All of our officers and directors, other than our independent directors, are officers of our advisor and property manager and serve, and may serve in the future, other affiliates of our advisor.

Effective April 17, 2023, the Company terminated the advisory agreement with Hartman XXI Advisors, LLC and the property management agreement with Hartman Income REIT Management, Inc. Both entities no longer provide management and advisory services to the Company.

Effective April 17, 2023, the Company entered into an advisory agreement with Hartman Advisors II, LLC and a property management agreement with REIT Property Management, LLC, a wholly-owned subsidiary of Hartman Advisors II, LLC. Allen R. Hartman is the sole member of Hartman Advisors II, LLC.

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Fees and Expense Reimbursements Paid to our Advisor

Pursuant to the terms of our advisory agreement in place at December 31, 2024, and our current advisory agreement, we pay our advisor the fees described below.

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Our advisory agreement has a one-year term, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties. We may terminate the advisory agreement without cause or penalty upon 60 days’ written notice and immediately for cause or upon the bankruptcy of our advisor. If we terminate the advisory agreement, then we will pay our advisor all unpaid reimbursements of expenses and all earned but unpaid fees. Refer to Note 13 (Subsequent Events) of the consolidated financial statements for information regarding termination the advisory agreement.

Property Management Fees Paid to Our Property Manager

We have entered into property management agreements with our property manager, REIT Property Management, LLC., with respect to the management of our properties. Pursuant to the management agreements, we pay the property manager a monthly management fee in an amount equal to 3% of each property's gross revenues (as defined in the respective management agreements) for each month. Each management agreement has an initial one-year term and will continue thereafter on a month-to-month basis unless either party gives prior notice of its desire to terminate the management agreement, provided that we may terminate the management agreement at any time without cause or upon an uncured breach of the agreement upon thirty (30) days prior written notice to the property manager. For the years ended December 31, 2024, 2023 and 2022, we recorded property management expense of $389,000, $470,000 and $406,000, respectively, due to our property manager.

Transactions with Related Parties

On April 11, 2017, we entered into a membership interest purchase agreement with Hartman XX Limited Partnership, or Hartman XX LP, the operating partnership of Silver Star Properties REIT.  Pursuant to the terms of a membership interest purchase agreement we may acquire up to $10,000,000 of Hartman XX LP’s equity ownership interest in Hartman Three Forest Plaza, LLC, or Three Forest Plaza LLC, which owns the Three Forest Property.

As of September 30, 2018, we had acquired an approximately 48.8% equity interest in Three Forest Plaza LLC from Hartman XX LP for an aggregate purchase price of $8,700,000.  

On October 1, 2018, Three Forest Plaza LLC contributed the Three Forest Plaza property to Hartman SPE, LLC, a special purpose entity formed for the purpose of refinancing certain indebtedness of Silver Star Properties REIT, Hartman Short Term Income Properties XIX, Inc. and Hartman Income REIT, Inc.

We received a 5.89% membership interest in Hartman SPE, LLC in exchange for our 48.8% minority interest in Three Forest Plaza, LLC.

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Effective March 1, 2019, the Company's board of directors approved the exchange of 3.42% of the Company's 5.89% ownership interest in Hartman SPE, LLC for 700,302 shares of common stock of Silver Star. The exchange reduced the Company’s ownership interest in Hartman SPE, LLC from 5.89% to 2.47%. The Company's investment in Hartman SPE, LLC and Silver Star Properties REIT is stated at cost, less impairment.

The conversion of our minority interest in Three Forest Plaza in favor of our investment in Hartman SPE LLC transforms our opportunity for earnings and growth from a single asset into an opportunity for earnings and growth from a diversified portfolio of 39 office, retail and industrial assets as of December 31, 2022. Hartman SPE LLC’s ownership has remained the same but its properties and square footage have decreased.

      On November 1, 2019, the Company received an unsecured promissory note from Silver Star in the face amount of $10,000,000 with an interest rate of 10%. The outstanding balance of the note was $10,000,000 and $6,012,000 at December 31, 2022 and 2021, respectively. The amended maturity date of the note is October 31, 2022. In addition to the balance due under the note, the Company made advances to Silver Star in 2022 of $7,168,000, which were outstanding at December 31, 2022, and which are not covered by the unsecured promissory note referred to herein. Accumulated outstanding balance as of December 31, 2022 was $17,168,000. During the year 2023, the Company received $1,832,000 in principal payments on these loans, with a current outstanding balance of $15,336,000 as of December 31, 2024 and 2023.

      Effective August 4, 2020, the Company received an unsecured promissory note from Silver Star in the amount of $8,200,000 together with additional advances in the amount of $2,411,000 for a total of $10,611,000, to a newly formed taxable REIT subsidiary, Hartman vREIT XXI TRS, Inc. The total amount is represented by two underlying notes from Hartman Retail III Holdings LLC and Hartman Ashford Bayou LLC. Each of the notes receivable bear interest at an annual interest rate of 10%. The outstanding balance of the Hartman Retail III Holdings LLC note is $1,547,000, $1,547,000 and $1,547,000 as of December 31, 2024, 2023, and 2022 and 2021, respectively. The amended maturity date of the Hartman Retail III Holdings LLC note is December 31, 2025. The outstanding balance of the Hartman Ashford Bayou LLC note is $3,828,000, $3,828,000 and $3,828,000 as of December 31, 2024, 2023 and 2022. The amended maturity date of the notes from Hartman Retail III Holdings LLC and Hartman Ashford Bayou LLC note is December 31, 2027.

Director Independence

As required by our charter, a majority of the members of the Board must qualify as “independent directors,” as such term is defined by our charter. Our charter defines independent director in accordance with the North American Securities Administrators Association, Inc.’s Statement of Policy Regarding Real Estate Investment Trusts, as revised and adopted on May 7, 2007. As defined in our charter, an independent director is a person who is not, on the date of determination, and within the last two years from the date of determination been, directly or indirectly, associated with our Sponsor or our advisor by virtue of (1) ownership of an interest in our Sponsor, our advisor, or any of their affiliates; (2) employment by our Sponsor, our advisor, or any of their affiliates; (3) service as an officer or director of our Sponsor, our advisor, or any of their affiliates (other than as one of our directors); (4) performance of services, other than as a director, for us; (5) service as a director or trustee of more than three real estate investment trusts organized by our Sponsor or advised by our advisor; or (6) maintenance of a material business or professional relationship with our Sponsor, our advisor, or any of their affiliates. A business or professional relationship is considered “material” if the aggregate gross revenue derived by the director from the Sponsor, the advisor, and their affiliates exceeds 5.0% of either the director’s annual gross revenue during either of the last two years or the director’s net worth on a fair market value basis. An indirect association with the Sponsor or the advisor shall include circumstances in which a director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law, or brother- or sister-in-law is or has been associated with the Sponsor, the advisor, any of their affiliates, or with us.

We have a three-member board of directors. One of our directors, Allen R. Hartman, is affiliated with our Sponsor and its affiliates, and we do not consider Mr. Hartman to be an independent director. After review of all relevant transactions or relationships between each director, or any of his family members, and our company, our senior management and our independent registered public accounting firm, our board has determined that Messrs. Quine and McFerrin, who comprise the majority of the Board, qualified (and continue to qualify) as independent directors as defined in our charter during their period of service. The Board also determined that Mr. Ostroot qualified as an independent directors as defined in our charter during the period that he served on the Board.

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Item 14.    Principal Accounting Fees and Services

Independent Registered Public Accounting Firm

    The aggregate fees billed to us by M&K professional audit services for the years ended December 31, 2024, and 2023 were $105,000 and $100,000, respectively.

 Weaver and Tidwell, L.L.P. performed the audit for the year ended December 31, 2022. They charged audit fees of $280,000 for year 2022. They also provided tax services for the same year, with aggregate charges of $62,000.

Pre-Approval Policies

The charter of our audit committee imposes a duty on the audit committee to pre-approve all audit and audit-related services performed for us by our independent auditors as well as all permitted non-audit services in order to ensure that the provision of such services does not impair the auditors’ independence. In determining whether or not to pre-approve services, the audit committee will consider whether the service is a permissible service under the rules and regulations promulgated by the SEC. The audit committee, may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided any such approval is presented to and approved by the full audit committee at its next scheduled meeting.

All services rendered to us by M&K for the years ended December 31, 2024, and 2023, were pre-approved in accordance with the policies and procedures described above.

Independent Registered Public Accounting Firm Fees

The aggregate fees billed to us by M&K professional audit services for the years ended December 31, 2024, and 2023 are set forth in the table below were $105,000 and $100,000, respectively.

    Weaver and Tidwell, L.L.P. performed the audit for year ended December 31, 2022. They charged audit fees of $280,000 for year 2022. They also provided tax services for the same year with aggregate charges of $62,000.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1), (2) and (c) Financial Statements.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2024, 2023 and 2022

Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2024, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022

Notes to Consolidated Financial Statements for the years ended December 31, 2024, 2023 and 2022

(a)(3) and (b) Exhibits.

The exhibits filed or furnished with this annual report are listed in the following Exhibit Index:

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*    Filed Herewith

Item 16. Form 10-K Summary

We have elected not to provide summary information.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on October 29, 2026.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO

SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES

PURSUANT TO SECTION 12 OF THE ACT

This registrant has not sent an annual report or proxy materials to its stockholders. The registrant will furnish each stockholder with an annual report within 120 days following the close of each fiscal year. The registrant will furnish copies of such report and proxy materials to the Securities and Exchange Commission when they are sent to stockholders.

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Report of Independent Registered Public Accounting Firm 

To the Board of Directors and Stockholders of Hartman vREIT XXI, Inc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hartman vREIT XXI, Inc. (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (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, 2024 and 2023, and the results of its consolidated operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements of Hartman vREIT XXI, Inc., as of December 31, 2022, were audited by other auditors whose report dated August 22, 2025, expressed an unqualified opinion on those consolidated financial statements.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has been unable to meet certain loan covenant requirements, which raises substantial doubt about its ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans in regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 audits 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, audits 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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Going Concern:

As discussed in Note 2, the Company has been unable to meet certain loan covenants, has incurred recurring losses from operation, and generated negative cash flows from operating activities and had an accumulated deficit that raises substantial doubt about the Company’s ability to continue as a going concern.

Auditing management’s evaluation of going concern can be a significant judgement given the fact that the Company uses management estimates on future revenues and expenses, which are difficult to substantiate. 

We evaluated the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern.

/s/ M&K CPAS, PLLC

We have served as the Company’s auditor since 2025.

The Woodlands, Texas

October 29, 2026

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Hartman vREIT XXI, Inc. and Subsidiaries

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hartman vREIT XXI, Inc. (a Maryland corporation) and Subsidiaries (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedule (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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, uncertainty exists regarding the Company’s ability to meet certain loan covenant requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these 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 entity'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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of real estate assets for potential impairment (Note 2)

Critical Audit Matter Description

The Company evaluates, on at least an annual basis, its real estate assets for potential impairment whenever changes in circumstances indicate that the value of real estate assets may not be recoverable. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value.

We identified the evaluation of real estate assets for potential impairment and management’s related determination of fair value as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate certain assumptions used in determining the recoverability of these real estate assets. Management’s impairment analysis of its real estate assets was also significant to our audit because the amounts are material to the consolidated financial statements. Auditing management’s assessment is complex and involves significant judgment as the Company’s ability to estimate future cash flows could be impacted by various economic and industry conditions as well as the Company’s assumptions.

How we addressed the matter in our audit

We obtained an understanding of the design and implementation of management’s controls with respect to their impairment analysis and evaluated the inputs used and underlying significant assumptions.

Our testing of the Company's impairment analysis included, among other procedures, evaluating the methods, data and underlying significant assumptions used to develop the estimated cash flows and related fair value estimates, testing the accuracy and completeness of operating data used in the calculation, identifying capitalization rates by geographic market, assessing the reasonableness of the market-specific capitalization rates, and performing a sensitivity analysis of the underlying significant assumptions to evaluate the potential changes in the fair value estimates. We also utilized an auditor specialist to assist in estimating the fair values based upon recent market comparable transactions.

Presentation and disclosure of related party transactions (Note 9)

Critical Audit Matter Description

The Company has a material amount of related party transactions as it regularly transacts with multiple other Hartman affiliates in the normal course of business.

Auditing the presentation and disclosure of these related party transactions, including the completeness thereof, was challenging due to the affiliates’ involvement in many aspects of the Company’s business, including (1) entities with common management, (2) formal and informal affiliate borrowings and advances, and (3) informal documentation governing such transactions.

How we addressed the matter in our audit

We obtained an understanding of the design and implementation of controls over the Company’s process of identifying and disclosing related party transactions.

To test the completeness of related party transactions, a listing of all related party relationships was compared to the Hartman affiliates’ legal structure and evidence obtained from other audit procedures including, among others, inquiries of management and the audit committee, review of the board of directors and other committee meeting minutes, and review of contracts. We also performed procedures to test material related party account activity and account balances including, among others, testing the related party amounts and disclosures of transactions recognized in the statement of operations and balance sheet accounts by inspecting source documentation, and evaluating the aggregated presentation and disclosure of related party transactions.

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Presentation and disclosure of related party transactions (Note 9)

Critical Audit Matter Description

The Company has a material amount of related party transactions as it regularly transacts with multiple other Hartman affiliates in the normal course of business.

Auditing the presentation and disclosure of these related party transactions, including the completeness thereof, was challenging due to the affiliates’ involvement in many aspects of the Company’s business, including (1) entities with common management, (2) formal and informal affiliate borrowings and advances, and (3) informal documentation governing such transactions.

How we addressed the matter in our audit

We obtained an understanding of the design and implementation of controls over the Company’s process of identifying and disclosing related party transactions.

To test the completeness of related party transactions, a listing of all related party relationships was compared to the Hartman affiliates’ legal structure and evidence obtained from other audit procedures including, among others, inquiries of management and the audit committee, review of the board of directors and other committee meeting minutes, and review of contracts. We also performed procedures to test material related party account activity and account balances including, among others, testing the related party amounts and disclosures of transactions recognized in the statement of operations and balance sheet accounts by inspecting source documentation, and evaluating the aggregated presentation and disclosure of related party transactions.

/s/ Weaver and Tidwell, L.L.P.

WEAVER AND TIDWELL, L.L.P.

We have served as the Company's auditor since 2015.

Houston, Texas

August 22, 2025

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