Item 5 - Fees and Compensation
Compensation and Fee Schedules
In conjunction with this brochure, investors should review the Governing Documents of the
applicable Fund in which they are invested or in which they are considering to invest, for more
complete information on the fees and compensation payable with respect thereto. With respect to
Funds managed by AREMH in which all investors are “qualified purchasers” (“Qualified
Purchasers”) as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended
(the “Investment Company Act”), information regarding the fees and compensation payable by
such investors is not required to be provided herein. With respect to AREA Real Estate Finance
Corporation (together with its consolidated subsidiaries, “AREFIN”), the annual base
management fee is equal to the product of (a) 0.5% and (b) the amount of the investors’
remaining capital allocated to one of AREFIN’s remaining assets. The AREFIN base
management fee is calculated and payable quarterly, in arrears.
In certain circumstances, the advisory fees payable to AREMH by investors in certain Funds
managed by AREMH may be negotiable. Investors and prospective investors in each Funds
managed by AREMH should refer to the Governing Documents of such Funds for more
complete information on the advisory fees charged by AREMH. In certain Funds, AREMH also
charges administration, agency, servicing fees and similar non-advisory fees and expenses.
AREMH’s annual investment management fee (“Management Fee”) is typically based on the
overall dollar value of all capital commitments and unreturned capital contributions, and may
also be a blended calculation of both components. In addition, Management Fees may be based
on the investor’s pro rata share of the Client’s net asset value. Management Fees are typically
charged on a quarterly basis and in arrears. Management Fees generally will be imposed as of
the initial closing date for each individual Fund client. Specific Management Fee arrangements
will be set forth in each individual Client’s Governing Documents.
AREMH may also earn compensation (sometimes called a “carried interest,” a “promote,” or an
“incentive” fee) that is generally calculated as a percentage of the net profits achieved by the
Client (a “Performance Fee”). AREMH’s Performance Fees are generally calculated and
assessed after the deduction of all expenses, management fees (if any), and any specially
allocated items of profit and loss (if any). Performance Fees are generally assessed only after
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Form ADV Part 2A: Firm Brochure
investments have been realized and returns exceed a performance benchmark. To the extent
AREMH assesses a Performance Fee on an annual basis (and not on a realization basis), then the
arrangement will typically involve a high water mark or loss carryforward provision, prohibiting
AREMH from receiving a Performance Fee until previous losses have been recuperated. The
specifics of AREMHs’ performance fee arrangements will be set forth in greater detail in the
applicable Governing Documents.
Investors and prospective investors in Funds managed by AREMH should note that similar
advisory services may (or may not) be available from other investment advisers for similar or
lower fees.
Deduction of Fees; Timing of Payments; Termination
For each client account managed by AREMH, AREMH is authorized under the Governing
Documents to charge and deduct advisory fees directly from the assets of such client account at
the times and in the amounts set forth in the Governing Documents of such client account.
Advisory fees for certain of AREMH’s client accounts are payable in arrears, generally on a
quarterly basis. Since such advisory fees are payable in arrears, they are not paid until after
services have been rendered. With respect to certain other AREMH client accounts, advisory
fees are payable quarterly in advance. Please refer to the Governing Documents of the
applicable client accounts for more complete information on the timing of advisory fee
payments.
Funds managed by AREMH, depending on the Fund structure, have the right to terminate
AREMH’s advisory services in accordance with the terms of the applicable Management
Agreement. AREMH’s general policy is to repay any advisory fees paid by a Fund managed by
AREMH in advance in excess of the pro rata portion earned by AREMH (based on the number
of days during the period) through the termination date. Any such refund would be implemented
through a wire transfer of funds to the affected clients upon termination of their Management
Agreement with AREMH.
Other Fees and Expenses
In addition to the fees payable to AREMH, Funds and client accounts may incur certain charges
including (but not limited to):
• Fees, costs and expenses incurred in connection with the formation of the Client
(“Organizational Expenses”), including without limitation, the costs and expenses of
accommodations, meals and entertainment and commercial and non-commercial
transportation (“Travel-Related Expenses”), legal, compliance and accounting expenses;
• the applicable Management Fee;
• the charges and expenses of the Client and its subsidiaries’ operations, including
maintaining the Client’s and its subsidiaries’ bank accounts or of any banks, custodians
or depositories appointed for the safekeeping of the investments or other assets of the
Client or any subsidiaries, all costs of bookkeeping and accounting services, all expenses
associated with the preparation and distribution of financial statements, tax returns, and
reports to investors in the Client, including Schedule K-1s to the investors in the Client,
and the costs to maintain data sites such as Intralinks;
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