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Item 1. Business

2022-03-16 compared with 2021-03-16 · 119 added, 97 removed, 138 unchanged (61% of the section changed)

Business Overview

The principal business of CIM Commercial Trust Corporation and its subsidiaries (which may be referred to in this Annual Report on Form 10-K as “we,” “us,” “our,” “our company”, “CIM Commercial” or the “Company”) is to acquire, own, and operate Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets).

These communities are located in areas that include traditional downtown areas and suburban main streets, which have high barriers to entry, high population density, positive population trends and a propensity for growth.

We believe that the critical mass of redevelopment in such areas creates positive externalities, which enhance the value of real estate assets in the area.

We believe that these assets will provide greater returns than similar assets in other markets as a result of the population growth, public commitment, and significant private investment that characterize these areas.

We are operated by affiliates of CIM Group, L.P.

Creative Media & Community Trust Corporation (formerly known as CIM Commercial Trust Corporation) and its subsidiaries (which may be referred to in this Annual Report on Form 10-K as “we,” “us,” “our,” “our company” or the “Company”) are operated by affiliates of CIM Group, L.P.

(“CIM Group” or “CIM”).

CIM is a community-focused real estate and infrastructure owner, operator, lender and developer.

Headquartered in Los Angeles, CA, CIM has offices across the United States and in Tokyo, Japan.

CIM is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Bethesda, MD, Chicago, IL, Dallas, TX, New York, NY, Orlando, FL, Phoenix, AZ, and Tokyo, Japan.

CIM also maintains additional offices across the United States, as well as in Korea, Hong Kong and the United Kingdom to support its platform.

See the sections “Overview and History of CIM Group”, “CIM Urban Partnership Agreement” and “Investment Management Agreement” in “Item 1—Business” of this Annual Report on Form 10-K.

We seek to utilize the CIM Group platform to acquire, improve and or develop real estate assets primarily within CIM Group’s qualified communities (“Qualified Communities”).

We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment, and significant private investment that characterize these areas.

Over time, we seek to expand our real estate assets in communities targeted by CIM Group, supported by CIM Group’s broad real estate capabilities, as part of our plan to prudently grow net asset value (“NAV”) and cash flow per share of Common Stock.

We primarily acquire Class A and creative office assets located in areas that CIM Group has targeted.

These areas include traditional downtown areas and suburban main streets, which have high barriers to entry, high population density, positive population trends and a propensity for growth.

CIM Group believes that the critical mass of redevelopment in such areas creates positive externalities, which enhance the value of real estate assets in the area.

CIM Group targets acquisitions of diverse types of real estate assets, including retail, residential, office, parking, hotel, signage and mixed-use through CIM Group’s extensive network and its current opportunistic activities.

Our reportable segments consist of two types of commercial real estate properties, namely office and hotel, as well as a segment for our lending business, which primarily originates loans to small businesses.

Creative Media & Community Trust Corporation is a Maryland corporation and REIT.

We primarily own and operate Class A and creative office real assets in vibrant and improving metropolitan communities throughout the United States.

We seek to acquire, operate and develop premier multifamily and creative office assets that cater to rapidly growing industries such as technology, media and entertainment in vibrant and emerging communities throughout the United States.

We seek to apply the expertise of CIM Group to the acquisition, development and operation of top-tier multifamily properties situated in dynamic markets with similar business and employment characteristics to its creative office investments.

All of our multifamily and creative office assets are and will generally be located in communities qualified by CIM Group as described further below.

Our current reportable segments consist of two types of commercial real estate properties, namely office and hotel, as well as a segment for our lending business, which primarily originates loans to small businesses.

As of December 31, 2021, our real estate portfolio consisted of 14 assets, all of which were fee-simple properties.

As of December 31, 2020, our nine office properties, totaling approximately 1.3 million rentable square feet, were 79.3% occupied, our one development site was being used as a parking lot, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $46.60 for the year ended December 31, 2020.

For the year ended December 31, 2020, our office portfolio contributed approximately 71.9% of revenue from our segments, while our hotel contributed approximately 17.3%, and our lending segment contributed approximately 10.8%.

Completion of the 2019 Program to Unlock Embedded Value in Our Portfolio and Improve Trading Liquidity of Our Common Stock

In 2019, we completed a program to unlock embedded value in our portfolio, enhance growth prospects and improve the trading liquidity of our Common Stock:

• Sale of Assets .

During 2019, we sold an aggregate of ten properties after evaluating each asset within our portfolio and the intrinsic value of each property (collectively, the “2019 Asset Sales”).

We received from the 2019 Asset Sales an aggregate gross sales price of $991.0 million.

• Repayment of Certain Indebtedness .

We used a portion of the net proceeds from the 2019 Asset Sales to repay balances on certain of our indebtedness.

• Return of Capital to Holders of Common Stock .

On August 30, 2019, we paid a special dividend of $42.00 per share of Common Stock ($14.00 per share of Common Stock prior to the Reverse Stock Split) (the "Special Dividend"), or $613.3 million in the aggregate.

• CIM REIT Liquidation .

In connection with its liquidation process, CIM Urban REIT, LLC, our former indirect principal stockholder ("CIM REIT"), (i) distributed during the year ended December 31, 2019 approximately 10,624,000 shares of our Common Stock formerly indirectly held by CIM REIT, representing approximately 72.8% of the outstanding shares of our Common Stock, to a diverse group of institutional investors that were former members of CIM REIT and (ii) sold, in October 2019, 2,468,390 shares of our Common Stock formerly indirectly held by CIM REIT, representing approximately 16.9% of the outstanding shares of our Common Stock, for $19.1685 per share to an affiliate of CIM Group in a private transaction.

In addition, in October 2019, we repurchased 2,693,580 shares of our Series L Preferred Stock, par value $0.001 per share (“Series L Preferred Stock”), at a purchase price of $27.73 per share, plus $1.39 per share in accrued and unpaid dividends.

As of December 31, 2021, our 11 office properties, totaling approximately 1.3 million rentable square feet, were 77.7% occupied, our development site was being used as a parking lot, our hotel and an ancillary parking garage.

The hotel has a total of 503 rooms and had RevPAR of $73.23 for the year ended December 31, 2021.

For the year ended December 31, 2021, our office portfolio contributed approximately 58.6% of revenue from our segments, while our hotel segment contributed approximately 19.6%, and our lending segment contributed approximately 21.8%.

Business Objectives and Growth Strategies

Our strategy is principally focused on the acquisition of Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets) in a manner that will prudently grow our NAV and cash flow per share of Common Stock.

We seek to utilize the CIM Group platform to acquire, improve and or develop real estate assets primarily within communities qualified by CIM Group as described below.

We are a Maryland corporation and REIT.

Our portfolio of investments currently consists of Class A and creative office real assets in vibrant and improving metropolitan communities throughout the United States.

All of our multifamily and creative office assets are and will generally be located in communities qualified by CIM Group as described further below.

We believe that the critical mass of redevelopment in such areas creates positive externalities, which enhance the value of real estate assets in the area.

We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment and significant private investment that characterize these areas.

Over time, we seek to expand our real estate assets in communities targeted by CIM Group, supported by CIM Group’s broad real estate capabilities.

We may also participate more actively in other CIM Group real estate strategies and product types in order to broaden our participation in CIM Group’s platform and capabilities for the benefit of all classes of stockholders.

This may include, without limitation, engaging in real estate development activities as well as investing in other product types directly, side-by-side with one or more funds of CIM Group, through direct deployment of capital in a CIM Group real estate or debt fund, or deploying capital in or originating loans that are secured directly or indirectly by properties primarily located in Qualified Communities that meet our strategy.

Such loans may include limited and or non-recourse junior (mezzanine, B-note or 2nd lien) and senior acquisition, bridge or repositioning loans.

As a matter of prudent management, we regularly evaluate each asset within our portfolio as well as our strategies.

Such review may result in dispositions when an asset no longer fits our overall objectives or strategies, or when our view of the market value of such asset is equal to or exceeds its intrinsic value.

Our investments in multifamily and creative office assets may take different forms, including direct equity or preferred investments, real estate development activities, side-by-side investments or co-investments with vehicles managed or owned by CIM Group and/or originating loans that are secured directly or indirectly by properties primarily located in qualified communities (“Qualified Communities”) that meet our strategy.

We intend that no investment will exceed 10% of our gross asset value at the time of investment but management may ultimately determine to execute on more significant acquisitions.

We intend to dispose of assets that do not fit into our strategy over time and opportunistically (i.e., we do not have any specific time frame with respect to such dispositions).

Further, as a matter of prudent management, we regularly evaluate each asset within our portfolio as well as our strategy.

Such review may result in dispositions when, among other things, we believe the proceeds generated from the sale of an asset can be redeployed in one or more assets that will generate better returns, or the market value of such asset is equal to or exceeds our view of its intrinsic value.

If we dispose of any of these assets, we intend to reinvest the proceeds in assets that fit our strategy.

CIM Group Operations

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In addition, they ensure that revenue objectives are met, lease terms are followed, receivables are collected, preventative maintenance programs are implemented, vendors are evaluated and expenses are controlled.

In addition, CIM Group’s real assets management committee (the “Real Assets Management Committee”) reviews and approves strategic plans for each asset, including financial, leasing, marketing, property positioning and disposition plans.

The Real Assets Management Committee reviews and approves the annual business plan for each property, including its capital and operating budget.

CIM Group’s organizational structure

provides for continuity through multi-disciplinary teams responsible for an asset from the time of the original investment recommendation, through the implementation of the asset’s business plan, and any disposition activities.

CIM Group’s Investments and Development teams are separate groups that work very closely together on transactions requiring development expertise.

While the Investments team is responsible for acquisition analysis, both the Investments and Development teams perform due diligence, evaluate and determine underwriting assumptions and participate in the development management and ongoing asset management of CIM Group’s opportunistic assets.

In addition, CIM Group’s real assets management committee (the “Real Assets Management Committee”) reviews and approves strategic plans for each asset, including financing, leasing, marketing and property positioning, as well as hold/sell analyses and performance tracking relative to the overall business plan.

CIM Group’s organizational structure provides for continuity through multi-disciplinary teams responsible for an asset from the time of the original investment recommendation, through the implementation of the asset’s business plan, and any repositions or ultimate disposition activities.

CIM Group’s Investments and Development teams are separate groups that work very closely together on transactions requiring development or redevelopment.

While the Investments team is ultimately responsible for acquisition analysis, both the Investments and Development teams perform due diligence, evaluate and determine underwriting assumptions and participate in the development management and ongoing asset management of CIM Group’s assets under development.

The Development team is also responsible for the oversight and or execution of securing entitlements and the development/repositioning process.

In instances where CIM Group is not the lead developer, CIM Group’s in-house Development team continues to provide development and construction oversight to co-sponsors through a shadow team that oversees the progress of the development from beginning to end to ensure adherence to the budgets, schedules, quality and scope of the project in order to maintain CIM Group’s vision for the final product.

The Investments and Development teams interact as a cohesive team when sourcing, underwriting, acquiring, executing and managing the business plan of an opportunistic acquisition.

Both the Investments and Development teams interact as a cohesive team when sourcing, underwriting, acquiring, executing and managing the business plan of an opportunistic acquisition.

Competitive Advantages

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Vertically-Integrated Organization and Team

CIM Group is managed by its senior management team, which is composed of its three founders, Shaul Kuba, Richard Ressler and Avraham Shemesh, and includes 10 other principals.

CIM Group is vertically-integrated and organized into six functional groups:

Real Property Related Services (which includes the Development, Onsite Property Management, Real Estate Services and Hospitality Services departments), Shared Services (which includes the Compliance, Operations, Human Resources, Marketing & Communications, Legal and Finance departments), Investments, Portfolio Oversight, Capital Markets and Partner & Co-Investor Relations.

CIM Group is managed by its senior management team, which includes all of its Principals and its three founders, Shaul Kuba, Richard Ressler and Avraham Shemesh.

CIM Group is vertically-integrated and offers Real Asset Services, including Development, Onsite Property Management and Leasing, and Real Asset Management, including Investments, Portfolio Oversight, Partner & Co-Investor Relations and Capital Markets.

These groups are supported by Compliance, Operations, Finance, Human Resources and Legal.

CIM also has an internal audit team that sits within the Operations department.

To support CIM Group’s organic growth and related platforms, CIM Group has invested substantial time and resources in building a strong and integrated team of approximately 562 experienced professionals as of December 31, 2020.

Each of CIM Group’s teams is managed by seasoned professionals and CIM Group continues to expand and develop its management team, to include the next generation of CIM Group’s leaders.

In addition to developing a core team of principals and senior level management, CIM Group has proactively managed its growth through career development and mentoring at both the mid and junior staffing levels, and has hired ahead of its needs, thus ensuring appropriate management and staffing.

CIM Group leverages the deep operating and industry experience of its principals and professionals, as well as their extensive relationships, to source and execute opportunistic, value add, core, and infrastructure acquisitions.

Each opportunity is overseen by a dedicated Investment team, including an oversight principal, a team lead (vice president level and above), associate vice presidents and associates, who are responsible for managing the asset from sourcing, underwriting, acquisition, development (if required), onsite property management, and disposition.

As part of this process, the team draws upon CIM Group’s extensive in-house expertise in legal, finance, development, leasing, and onsite property management.

Each dedicated Investment team is purposefully staffed with professionals from multiple CIM Group offices, regardless of the location of the asset being evaluated.

To support CIM Group’s organic growth and related platforms, CIM Group has invested substantial time and resources in building a strong and integrated team of over 1,000 employees and more than 570 professionals as of December 31, 2021.

Each of the CIM Group’s vertically-integrated departments is managed by a senior level executive.

Department heads have been with CIM Group on average 10 or more years..

In addition to developing a core team of principals and other senior level executives, CIM Group has proactively managed its growth through

career development and mentoring at both the mid and junior staffing levels, and has hired ahead of its needs, thus ensuring appropriate management and staffing.

As part of this initiative, CIM Group has developed a recruiting program that hires from business schools for its associate vice president positions in the Investments team annually.

As a result, CIM Group seeks to grow organically and develop and train its investment professionals to progress into senior management roles.

It has been CIM Group’s practice to grow talent within the company to promotion to principal, rather than to hire from the outside.

Each opportunity is typically overseen by a dedicated Investment team, including an oversight Principal, one Investment lead (vice president level and above), one associate vice president and one associate from the Investments team.

The team is assembled based on the expertise needed for the particular transaction.

Additionally, the team works closely with staff from other departments, such as Development, Onsite Property Management, Capital Markets, Real Estate Services, Legal and Finance.

The team oversees all aspects of the project from acquisition through disposition of the asset.

The team conducts the underwriting and due diligence for the transaction, presents its findings to the Investment Committee for preliminary and final approvals.

As a result, all investment professionals work across a variety of Qualified Communities and CIM Group’s knowledge base is shared across its offices.

Community Qualification

Since inception, CIM Group’s proven community qualification process has served as the foundation for its investing strategy.

CIM Group targets high barrier to entry markets and submarkets with high population density and applies rigorous research to designate the market as a CIM Group Qualified Community for potential acquisitions.

Since 1994, CIM Group has identified 135 Qualified Communities and has deployed capital in 75 of them.

As part of the community qualification process, CIM Group examines the characteristics of a market to determine whether the district possesses certain characteristics prior to the extensive efforts CIM Group’s investment professionals undertake when reviewing potential acquisitions.

Since inception, CIM Group’s unique community qualification process has served as the foundation for all of its strategies.

CIM Group targets high barrier-to-entry markets and submarkets with high population density and applies rigorous research to qualify each submarket for potential acquisitions.

Since 1994, CIM Group has qualified 135 communities in high barrier-to-entry markets and has deployed capital in 75 of the communities.

The qualification process generally takes between six months and five years and is a critical component of our evaluation of potential acquisitions.

CIM Group examines the characteristics of a market to determine whether the district justifies the extensive efforts undertaken in reviewing and making potential acquisitions in its Qualified Communities.

Qualified Communities generally fall into one of two categories:

(i) transitional metropolitan districts that have dedicated resources to become vibrant metropolitan communities and (ii) well-established, thriving metropolitan areas (typically major central business districts).

(i) transitional metropolitan districts and (ii) well-established, thriving metropolitan areas (typically major central business districts(“CBDs”)).

Once a community is qualified, CIM Group believes it continues to differentiate itself through the following business principles:

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• Community-Based Tenanting —CIM Group’s strategy focuses on the entire community and the best use of assets in that community.

owning a significant number of key properties in an area better enables CIM Group to meet the co-tenancy needs of national retailers and office tenants and thus optimize the value of these real estate properties.

Owning a critical mass of key properties in an area better enables CIM Group to meet the co-tenancy needs of national retailers and office tenants and thus optimize the value of these real estate properties.

CIM Group believes that its community perspective gives it a significant competitive advantage in attracting tenants to its retail, office and mixed-use properties and creating synergies between the different tenant types.

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CIM Group does not need to acquire assets in a given community or product type at a specific time due to its broad proprietary pipeline of opportunities.

• Deploying Capital Across the Capital Stack —CIM Group has extensive experience structuring transactions across the capital stack including equity, preferred equity, debt and mezzanine positions, giving it the flexibility to structure transactions in efficient and creative ways.

• Deploying Capital Across the Capital Stack —CIM Group has extensive experience structuring transactions across the capital stack including equity, preferred equity, senior debt and mezzanine positions, giving it the flexibility to structure transactions in efficient and creative ways.

CIM Group’s strategy relies on its sound business plan and value creation execution to produce returns, rather than financial engineering.

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We may finance our future activities through one or more of the following methods:

(i) offerings of shares of Common Stock, Preferred Stock or other equity and or debt securities of the Company;

(i) offerings of shares of our common stock, par value $0.001 per share (“Common Stock”), preferred stock or other equity and or debt securities of the Company;

(ii) credit facilities and term loans;

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and or (v) cash flows from operations.

We issued to CIM Capital, LLC, an affiliate of CIM Group (“the Operator”), an aggregate of 203,349 shares of our Common Stock and 287,199 shares of our Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), as payment, in lieu of cash, for all asset management fees owed to the Operator in respect of fees incurred during the year ended December 31, 2020.

Additionally, we issued to CIM Service Provider, LLC, an affiliate of CIM Group (the “Administrator”), 11,273 shares of Series A Preferred Stock, in lieu of cash as payment of the Base Service Fee (as defined below) in respect of the first fiscal quarter of the year ended December 31, 2020.

All of such securities were issued pursuant to the exemption from

registration contained in Section 4(a)(2) of the Securities Act.

It is likely that we will seek to pay some or part of the asset management fees for part of the year ending December 31, 2021 in shares of Series A Preferred Stock .

Risk Management

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These laws often impose liability regardless of whether the person knew of, or was responsible for, the presence of the hazardous or toxic substances that caused the contamination.

The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent our property, to borrow using the property as collateral or create lender’s liability for us.

The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent our property, to borrow

using the property as collateral or create lender’s liability for us.

In addition, third parties exposed to hazardous or toxic substances may sue for personal injury damages and or property damages.

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Under the Americans with Disabilities Act of 1990, as amended (the “ADA”), all public accommodations must meet federal requirements related to access and use by disabled persons.

Although we believe that our properties, to the extent such

properties are “public accommodations” as defined under the ADA, substantially comply with present requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance.

Although we believe that our properties, to the extent such properties are “public accommodations” as defined under the ADA, substantially comply with present requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance.

If one or more of our properties or future properties are not in compliance with the ADA, we may be required to take remedial action which would require us to incur additional costs to bring the property into compliance.

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CIM Group was founded in 1994 by Shaul Kuba, Richard Ressler and Avraham Shemesh and has approximately $29.7 billion of assets owned and operated across its vehicles as of September 30, 2021.

“Assets owned and operated” refers to the aggregate assets owned and operated by CIM Group on behalf of itself, the funds it manages, and third-party co-investors, consisting of real estate properties and investment securities, and includes all real property operated by CIM Group whether or not CIM Group has final decision-making authority concerning such properties.

“Assets owned and operated” represents the aggregate assets owned and operated by CIM on behalf of partners (including where CIM contributes capital alongside for its own account) and co-investors, whether or not CIM has discretion, in each case without duplication.

CIM Group’s successful track record is anchored by CIM Group’s community-oriented approach to acquisitions as well as a number of other competitive advantages including its prudent use of leverage, underwriting approach, disciplined capital deployment, vertically-integrated capabilities and strong network of relationships.

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The general partner of CIM Urban, Urban Partners GP, LLC (“CIM Urban GP”), is an affiliate of CIM Group and has the full, exclusive and complete right, power, authority, discretion and responsibility vested in or assumed by a general partner of a limited partnership under the Delaware Revised Uniform Limited Partnership Act and as otherwise provided by law and is vested with the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of CIM Urban, subject to the terms of the CIM Urban Partnership Agreement.

Liability for Acts and Omissions

None of CIM Urban GP or any of its affiliates, members, stockholders, partners, managers, officers, directors, employees, agents and representatives will have any liability in damages or otherwise to any limited partner, any investors in CIM REIT or CIM Urban, and CIM Urban will indemnify such persons from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, lawsuits, proceedings, costs, expenses and disbursements of any kind which may be imposed on, incurred by or asserted against such persons in any way relating to or arising out of any action or inaction on the part of such persons when acting on behalf of CIM Urban or any of its investments, except for those liabilities that result from such persons’ fraud, gross negligence, willful misconduct or breach of the terms of the CIM Urban Partnership Agreement or any other agreement between such person and CIM Urban or its affiliates.

Investment Management Agreement

In December 2015, CIM Urban and the Operator, entered into an investment management agreement, pursuant to which CIM Urban engaged CIM Capital to provide certain services to CIM Urban (the “Investment Management Agreement”).

On January 1, 2019, CIM Capital assigned its duties under the Investment Management Agreement to its four wholly-owned subsidiaries:

CIM Urban and CIM Capital, LLC, an affiliate of CIM Group (“the Operator”), are parties to an investment management agreement pursuant to which CIM Urban engaged the Operator to provide certain services to CIM Urban (the “Investment Management Agreement”).

The Operator has assigned its duties under the Investment Management Agreement to its four wholly-owned subsidiaries:

CIM Capital Securities Management, LLC, a securities manager, CIM Capital RE Debt Management, LLC, a debt manager, CIM Capital Controlled Company Management, LLC, a controlled company manager, and CIM Capital Real Property Management, LLC, a real property manager.

The “Operator” refers to CIM Investment Advisors, LLC from December 10, 2015 to December 31, 2018 and to CIM Capital and its four wholly-owned subsidiaries on and after January 1, 2019.

The “Operator” refers to CIM Capital, LLC and its four wholly-owned subsidiaries.

CIM Urban pays asset management fees to the Operator on a quarterly basis in arrears.

The fee is calculated as a percentage of the daily average adjusted fair value of CIM Urban’s assets as described in Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K.

The Operator is responsible for the payment of all costs and expenses relating to the general operation of its business, including administrative expenses, employment expenses and office expenses.

Prior to 2022, the fee was calculated as a percentage of the daily average adjusted fair value of CIM Urban’s assets as described in Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K.

Please see “—Fee Waiver” below for a description of the calculation of the asset management fees to the Operator since the beginning of 2022.

The Operator is responsible for the payment of all costs and expenses relating to the general operation of its management business, including administrative expenses, employment expenses and office expenses.

All costs and expenses incurred by the Operator on behalf of CIM Urban are borne by CIM Urban.

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Master Services Agreement

The Administrator provides, or arranges for other service providers to provide, management and administration services (the “Base Services”) to CIM Commercial and its subsidiaries under the terms of a master services agreement, dated as of March 11, 2014, as amended on May 11, 2020 (the “Master Services Agreement”).

CIM Service Provider, LLC, an affiliate of CIM Group (the “Administrator”) provides, or arranges for other service providers to provide, management and administration services (the “Base Services”) to us and our subsidiaries under the terms of a master services agreement, dated as of March 11, 2014, as amended on May 11, 2020 (the “Master Services Agreement”).

Pursuant to the Master Services Agreement, we appointed an affiliate of CIM Group as the Administrator of CIM Urban GP (“Urban GP Administrator”).

Under the Master Services Agreement, CIM Commercial pays to the Administrator on a quarterly basis an incentive fee (the “Incentive Fee”) equal to 15.00% of CIM Commercial’s quarterly core funds from operations in excess of a quarterly threshold equal to 1.75% (i.e., 7.00% on an annualized basis) of CIM Commercial’s average adjusted common stockholders’ equity (i.e., common stockholders’ equity plus accumulated depreciation and amortization) for such quarter.

Prior to the amendment of the Master Services Agreement in 2020, for fiscal quarters prior to April 1, 2020, CIM Commercial paid to the Administrator on a quarterly basis a base service fee (the “Base Service Fee”) of approximately $1.0 million per year (which, for each year after 2014, was subject to an annual escalation by a specified inflation factor beginning on January 1 of each year).

In addition, pursuant to the terms of the Master Services Agreement, the Administrator may receive compensation and or reimbursement for performing certain services (other than the Base Services) for CIM Commercial and its subsidiaries.

Such services performed by the Administrator and its affiliates may include accounting, tax, reporting, internal audit, legal, compliance, risk management, IT, human resources, corporate communications, operational and on-going support in connection with our registered public offering of our Series A Preferred Stock and Series D Preferred Stock, par value $0.001 per share (“Series D Preferred Stock” and, together with the Series A Preferred Stock and Series L Preferred Stock, “Preferred Stock”).

The Administrator’s compensation for such services is based on the salaries and benefits of the employees of the Administrator and or its affiliates who performed such services (allocated based on the percentage of time spent on the affairs of CIM Commercial and its subsidiaries).

For fiscal quarters prior to April 1, 2020, we paid to the Administrator, on a quarterly basis, a base service fee (the “Base Service Fee”) of approximately$1.0 million per year (which, for each year after 2014, was subject to an annual escalation by a specified inflation factor beginning on January 1 of each year).

On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with an incentive fee (the “Prior Incentive Fee”) pursuant to which the Administrator was entitled to receive, on a quarterly basis, 15.00% of our quarterly core funds from operations in excess of a quarterly threshold equal to 1.75% (i.e., 7.00% on an annualized basis) of our average adjusted common stockholders’ equity (i.e., common stockholders’ equity plus accumulated depreciation and amortization) for such quarter.

The amendment was effective as of April 1, 2020.

No Prior Incentive fee was paid in 2020 or 2021.

Please see “—Fee Waiver” below for a description of the calculation of the fees to the Administrator since the beginning of 2022.

Such services performed by the Administrator and its affiliates may include accounting, tax, reporting, internal audit, legal, compliance, risk management, IT, human resources, corporate communications, operational and on-going support in connection with our registered public offering of our Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”) and Series D Preferred Stock, par value $0.001 per share (“Series D Preferred Stock” and, together with the Series A Preferred Stock and

Series L Preferred Stock, “Preferred Stock”).

On January 5, 2022, we and certain of our subsidiaries entered into a Fee Waiver (the “Fee Waiver”) with the Operator and the Administrator with respect to fees that are payable to them.

The Fee Waiver is effective retroactively to January 1, 2022 (the “Effective Date”).

Pursuant to the Fee Waiver, the Administrator agrees to voluntarily waive any fees in excess of those set forth in the Fee Waiver, to the extent it would otherwise have been entitled to such additional compensation under the Master Service Agreement, and the Operator agrees to voluntarily waive any fees in excess of those set forth in the Fee Waiver, to the extent it would otherwise have been entitled to such additional compensation under the Investment Management Agreement.

A base asset management fee (the “Base Fee”) is payable quarterly in arrears to the Operator in an amount equal to an annual rate of 1% (or 0.25% per quarter) of the average of the “Net Asset Value Attributable to Common Stockholders” as of the first and last day of the applicable quarter.

Net Asset Value Attributable to Common stockholders is defined as (a) the sum of the Company’s (1) investments in real estate at fair value, (2) cash, (3) loans receivable at fair value and (4) the book value of the other assets of the Company, excluding deferred costs and net of other liabilities at book value, less (b) the Company’s (i) debt at face value, (ii) outstanding preferred stock at stated value, and (iii) non-controlling interests at book value;

provided, that, non-controlling interests in any UPREIT operating partnership relating to the Company shall not be excluded.

Incentive Fee:

A revised incentive fee (the “Revised Incentive Fee”) is payable quarterly in arrears to the Administrator with respect to the quarterly core funds from operations in excess of a quarterly threshold equal to 1.75% (i.e., 7.00% on an annualized basis) of the Company’s “Adjusted Common Equity” (as defined below) for such quarter (“Excess Core FFO”) as follows:

(i) no Revised Incentive Fee in any quarter in which the Excess Core FFO is $0;

(ii) 100% of any Excess Core FFO up to an amount equal to the product of (x) the average of the Adjusted Common Equity as of the first and last day of the applicable quarter and (y) 0.4375%;

and (iii) 20% of any Excess Core FFO thereafter.

Revised Incentive Fees payable for any partial quarter will be appropriately prorated.

“Adjusted Common Equity” means Common Equity plus Excluded Depreciation and Amortization.

“Common Equity” means Total Stockholders’ Equity minus Excluded Equity.

“Total Stockholders’ Equity” means the amount reflected as total stockholders’ equity in accordance with GAAP on the consolidated balance sheet of the Company and its subsidiaries as of the last day of a given quarter.

“Excluded Equity” means the sum of all preferred securities of the Company and its subsidiaries classified as permanent equity in accordance with GAAP on the consolidated balance sheet of the Company and its subsidiaries as of the last day of a given quarter.

“Excluded Depreciation and Amortization” means, for a given quarter, the amount of all accumulated depreciation and amortization of (i) the Company and its subsidiaries and (ii) to the extent allocable to the Company and its subsidiaries, the unconsolidated affiliates, in each case as of the last day of such quarter that corresponds to the periodic depreciation and amortization expense calculated in each case in accordance with GAAP that is a permitted add back to net income calculated in accordance with GAAP when calculating funds from operations.

Capital Gains Fee:

A capital gains fee (the “Capital Gains Fee”) is payable quarterly in arrears to the Administrator in an amount equal to (i) 15% of the cumulative aggregate realized capital gains minus the cumulative aggregate realized capital losses (in each case since the Effective Date), minus (ii) the aggregate capital gains fees paid since the Effective Date.

Realized capital gains and realized capital losses are calculated by subtracting from the sales price of a property:

(a) any costs incurred to sell such property, and (b) the current gross value of the property (meaning the property’s original acquisition price plus any subsequent, non-reimbursed capital improvements thereon paid for by the Company).

Following the end of each quarter, the Administrator will deliver to the Company (i) a calculation of the cumulative fees earned by the Operator and the Administrator under the methodology prescribed by the Fee Waiver (the “Fee Waiver Methodology”) from the Effective Date through the end of such quarter and (ii) a calculation of the cumulative fees that would have been earned, in the absence of the Fee Waiver, by the Operator and the Administrator during such period under the Master Services Agreement and the Investment Management Agreement, without giving effect to the Fee Waiver (the “Pre-Fee Waiver Methodology”).

If, in respect of any quarter, the aggregate fees that are payable under the Fee Waiver Methodology exceed the aggregate fees that would have been payable under the Pre-Fee Waiver Methodology for the equivalent period, such quarter is deemed an “Excess Quarter”.

For any quarter following an Excess Quarter, the Company (upon the direction of the independent members of the Board) may, at its option and upon written notice to Administrator, elect to calculate all fees due to the Administrator and the Operator in accordance with the Pre-Fee Waiver Methodology from and after such Excess Quarter.

election by the Company to adopt the Pre-Fee Waiver Methodology is irrevocable, and all fees due to the Administrator and the Operator from and after such election will be calculated in accordance with the Pre-Fee Waiver Methodology.

Other Services

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CIM SBA Staffing, LLC, an affiliate of CIM Group (“CIM SBA”), provides personnel and resources to us pursuant to the terms of a Staffing and Reimbursement Agreement, dated as of January 1, 2015, between CIM SBA and PMC Commercial Lending, LLC, our subsidiary.

We reimburse CIM SBA for the costs and expenses of providing such personnel and resources.

CCO Capital, LLC, a registered broker dealer and is under common control with the Operator and the Administrator (“CCO Capital”), serves as our exclusive dealer manager for our continuous public offering of Series A Preferred Stock and Series D Preferred Stock under the terms of a Second Amended and Restated Dealer Manager Agreement, dated as of January 28, 2020, as amended by Amendment No.

We reimburse CIM SBA for the costs and expenses of providing such personnel and resources as expenses incurred for the lending division.

CCO Capital, LLC, a registered broker dealer and under common control with the Operator and the Administrator (“CCO Capital”), serves as our exclusive dealer manager for our continuous public offering of Series A Preferred Stock and Series D Preferred Stock under the terms of a Second Amended and Restated Dealer Manager Agreement, dated as of January 28, 2020, as amended by Amendment No.

1 thereto, dated as of April 9, 2020 (the “Second A&R DMA”).

Under the terms of the Second A&R DMA, CCO Capital receives for such services (1) an upfront dealer manager fee of up to 1.25% of the selling price of each such share of Preferred Stock sold, (2) selling commissions of up to 7.00% of the selling price of each such share of Series A Preferred Stock sold (with no selling commissions payable in respect of shares of Series D Preferred Stock sold) and (3) a trailing dealer manager fee that accrues daily in an amount equal to 1/365 th of 0.25% per annum of the selling price of each share of Preferred Stock sold.

Prior to the amendment of the Second A&R DMA in April 2020, the selling commissions

payable to CCO Capital were up to 5.50% of the selling price of each share of Series A Preferred Stock sold, rather than up to 7.00%.

Under the terms of the Second A&R DMA, we compensate CCO Capital for such services as follows:

(1) an upfront dealer manager fee of up to 1.25% of the selling price of each such share of Preferred Stock sold, (2) selling commissions of up to 7.00% of the selling price of each such share of Series A Preferred Stock sold (with no selling commissions payable in respect of shares of Series D Preferred Stock sold) and (3) a trailing dealer manager fee that accrues daily in an amount equal to 1/365 th of 0.25% per annum of the selling price of each share of Preferred Stock sold.

Prior to the amendment of the Second A&R DMA in April 2020, the selling commissions payable to CCO Capital were up to 5.50% of the selling price of each share of Series A Preferred Stock sold, rather than up to 7.00%.

The Second A&R DMA permits CCO Capital to, in its sole discretion, reallow to another broker-dealer authorized by it to sell shares in the offering a portion of the upfront dealer manager fee earned by it in respect of shares sold by such broker-dealer.

We have been informed that CCO Capital generally reallows 100% of the selling commissions on sales of Series A Preferred Stock and generally reallows substantially all of the upfront dealer manager fee on sales of Series A Preferred Stock and Series D Preferred Stock, to participating broker-dealers.

On September 22, 2021, the Company entered into Amendment No.

2 to the Second A&R DMA, pursuant to which the upfront dealer manager fee payable to the Dealer Manager was changed to up to 3.00% and the trailing dealer manager fee with respect to the sale of shares of Series A Preferred Stock sold in the Offering on or after September 9, 2021 was eliminated.

From May 31, 2019 through January 27, 2020, CCO Capital served as the exclusive dealer manager for our public offering of units, each of which consisted of one share of Series A Preferred Stock and one warrant to purchase 0.25 shares of Common Stock (“Series A Preferred Units”).

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Lending Segment

Through our loans originated under the Small Business Administration’s (“SBA”) 7(a) Guaranteed Loan Program (“SBA 7(a) Program”), we are a national lender that primarily originates loans to small businesses.

Through our loans originated under the Small Business Administration (“SBA”)’s 7(a) Small Business Loan Program (“SBA 7(a) Program”), we are a national lender that primarily originates loans to small businesses.

We identify loan origination opportunities through personal contacts, internet referrals, attendance at trade shows and meetings, direct mailings, advertisements in trade publications and other marketing methods.

We also generate loans through referrals from real estate and loan brokers, franchise representatives, existing borrowers, lawyers and accountants.

In addition, as a SBA 7(a) licensee, we are an authorized lender under the Paycheck Protection Program (the “PPP”) enacted during the year ended December 31, 2020.

The PPP provides lenders under the program with a 100% guaranty of repayment (provided certain conditions are met) and provides the small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%.

In addition, as an SBA 7(a) licensee, we originated loans as an authorized lender under the Paycheck Protection Program (“PPP”), which was enacted during the year ended December 31, 2020 and completed during 2021.

While originations under the PPP have ended we still had PPP loans outstanding as of December 31, 2021.

The PPP provides lenders who originated loans under the program with a 100% guaranty of repayment (provided certain conditions are met) and provides small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%.

Loans originated under the PPP will be fully forgiven, subject to certain limitations, when used by the borrower for payroll costs, interest on mortgages, rent, and utilities.

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For those loans whose borrowers do not meet the criteria required for forgiveness, the borrower is required to repay the remaining obligation.

Upon a borrower default of any remaining balance due, if any, the SBA will remit the balance due to us.

Upon a borrower default of any remaining balance due, if any, the SBA will remit the remaining balance due to us.

The loans that we originated under the PPP have a two-year term if originated prior to June 5, 2020 and have a five-year term if originated after June 5, 2020.

The PPP provides for funding to us through the Federal Reserve on a basis the correlates to the outstanding principal balance due from our borrowers pursuant to the PPP on a dollar-for-dollar basis with a cost of funds of 0.35%,

We obtained all funds to originate loans under the PPP from the Federal Reserve on a basis that correlated to the outstanding principal balance due from our borrowers pursuant to the PPP on a dollar-for-dollar basis with a cost of funds of 0.35%.

Our revenues and expenses for our hotel property are subject to seasonality during the year.

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This seasonality can be expected to cause quarterly fluctuations in revenues, segment net operating income, net income and cash provided by operating activities.

Additionally, our operating results have been and will be adversely affected by the continued effects of the novel coronavirus (“COVID-19”) and renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at our hotel (which renovations were suspended in March 2020 but may be resumed in 2021), as well as the temporary closure of the nearby Sacramento Convention Center until its expected reopening in early 2021.

Additionally, our operating results have been and are expected to continue to be adversely affected by the effects of the novel coronavirus (“COVID-19”).

In addition, the hotel industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic factors.

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Human Capital

We are operated by affiliates of CIM Group and, as of December 31, 2020, only have four employees.

Three of such employees are in our lending segment while one employee spends a substantial portion of the time that he devotes to us on matters relating to the lending segment.

We are operated by affiliates of CIM Group and, as of December 31, 2021, only have five employees.

Four of such employees are in our lending segment while one employee spends a substantial portion of the time that he devotes to us on matters relating to the lending segment.

We have entered into the Master Services Agreement with the Administrator, an affiliate of CIM Group, pursuant to which the Administrator has agreed to provide, or arrange for other service providers to provide, management and administration services to us and our subsidiaries.

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Available Information

The public can access free of charge through the “Shareholders” section of our corporate website, www.cimcommercial.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8‑K, and amendments to those reports filed with or furnished to the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after such material is filed with or furnished to the SEC.

The public can access free of charge through the “Shareholders” section of our corporate website, www.creativemediacommunity.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8‑K, and amendments to those reports filed with or furnished to the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after such material is filed with or furnished to the SEC.

The information on our corporate website is not part of this Annual Report on Form 10-K.

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We have adopted a written code of ethics that applies to all of our directors, officers and employees, the Operator and the Administrator, including our principal executive officer and senior financial officer, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC promulgated thereunder.

The code of ethics, which we call our Code of Business Conduct and Ethics, is available on our corporate website, www.cimcommercial.com, in the section entitled “Shareholders—Corporate Overview—Corporate Governance.” In the event that we make changes in, or provide waivers from, the provisions of such code of ethics that the SEC requires us to disclose, we intend to disclose these events on our corporate website in such section.

The code of ethics, which we call our Code of Business Conduct and Ethics, is available on our corporate website, www.creativemediacommunity.com, in the section entitled “Shareholders—Corporate Overview—Corporate Governance.” In the event that we make changes in, or provide waivers from, the provisions of such code of ethics that the SEC requires us to disclose, we intend to disclose these events on our corporate website in such section.

In the Corporate Governance section of our corporate website, we have also posted our Audit Committee Charter, as well as our Governance Principles.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business