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Item 1. Business

2021-09-28 compared with 2020-09-21 · 173 added, 183 removed, 37 unchanged (91% of the section changed)

MacKenzie Realty Capital, Inc.

(the “ Parent Company, ” together with its subsidiaries as discussed below, the “Company,” “ we, ” “ us, ” or “our”) is an externally managed non-diversified real estate

investment trust (“REIT”), as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the " Code "), that has elected to be treated as a business development company (“ BDC ”) under the Investment Company Act of 1940

(the “ 1940 Act ”).

Our investment objective is to generate both current income and capital appreciation through investments in real estate companies (as defined below).

We are advised by MCM Advisers, LP (the “ Adviser ” or “ MCM

MacKenzie Capital Management, LP (“ MacKenzie ” or the “ Administrator ”) provides us with non-investment management services and administrative services necessary for us to operate.

(the “Parent Company,” together with its subsidiaries as discussed below, the “Company,” “we,” “us,” or “our”) was an externally managed non-diversified real estate investment trust

(“REIT”), as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), that had elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment

Company Act”).

As of December 31, 2020, we have withdrawn our election to be regulated as a BDC while continuing our REIT election for U.S.

federal income tax purposes.

Withdrawal of our election to be regulated as a BDC did not affect our registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will continue to file periodic reports on

Form 10-K, Form 10-Q, and Form 8-K, as well as file proxy statements and other reports required under the Exchange Act.

As a result of the withdrawal of our election to be regulated as a BDC, we are no longer treated as an investment company for

purposes of applying accounting principles generally accepted in the United States of America (“GAAP”).

We are advised by MacKenzie Real Estate Advisers, LP (the “Real Estate Adviser”) as to our real estate investments and by MCM Advisers, LP (the “Investment Adviser”;

“Real Estate Adviser” and the “Investment Adviser” are referred to as the “Advisers”) as to our securities portfolio .

MacKenzie Capital Management, LP (“MacKenzie” or the “Administrator”) provides us with non-investment management

services and administrative services necessary for us to operate.

The Parent Company filed its initial registration statement in June 2012 with the Securities and Exchange Commission (“SEC”) to register the initial public offering (“IPO”) of 5,000,000 shares of its common stock.

IPO commenced in January 2014 and concluded in October 2016.

The IPO commenced in January 2014 and concluded in October 2016.

The Parent Company filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of its common stock.

The second offering commenced in

December 2016 and concluded on October 28, 2019.

The second offering commenced

in December 2016 and concluded on October 28, 2019.

The Parent Company filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of its common stock that was declared effective by the SEC on October 31,

The third offering commenced shortly thereafter and is continuing.

The Parent Company’s wholly owned subsidiary, MRC TRS, Inc., (“ TRS ”) was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT

TRS started its operation on January 1, 2017, and the financial statements of TRS have been consolidated with the Parent Company’s consolidated financial statements beginning with the quarter ended March 31, 2017.

On December 20, 2017, a

wholly owned subsidiary of TRS, MacKenzie NY Real Estate 2 Corp.

(“MacKenzie NY 2”), was formed for the purpose of making certain limited investments in New York companies, and its financial statements have been consolidated with the Parent Company.

While we remain a BDC, our investments generally range in size from $10,000 to $3 million.

However, we may make smaller or larger investments from time to time on an opportunistic basis.

We focus primarily on real

estate-related securities.

We purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately offered securities, directly from issuers.

invest primarily in debt and equity securities issued by U.S.

companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

While we remain a BDC, we generally seek to invest in interests of real estate-related limited partnerships and REITs.

Under normal market conditions, we invest at least 80% of our total assets in common stocks and

other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities.

A real estate company is one that (i) derives at least 50% of its revenue from the ownership, construction, financing, management or sale

of commercial, industrial or residential real estate and land;

or (ii) has at least 50% of its assets invested in such real estate.

We will not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to

their security holders.

However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities.

We generally favor purchasing securities issued by entities that have

(i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or

other real estate-related investments.

While we remain a BDC, we may also acquire or originate (i) loans secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real estate), (ii) securities of issuers

that own mortgages secured by income producing real property, and (iii) using no more than 20% of our available capital, securities of issuers that own assets other than real estate.

At our board meeting on August 28, 2020, our Board of Directors approved the proposal to withdraw of our BDC election, while continuing our REIT status.

Therefore, on October 23, 2020, our stockholders will be asked to

approve the withdrawal of our BDC election.

If this proposal is approved, the Company will, effective upon receipt by the SEC of the Company’s application for withdrawal, no longer be regulated as a BDC or subject to the regulatory provisions of the

Withdrawal of our election to be regulated as a BDC will not affect our registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will continue to file periodic reports on Form 10-K, Form 10-Q, and

Form 8-K, and file proxy statements and other reports required under the Exchange Act.

Following withdrawal of our election to be regulated as a BDC, the application and presentation of our financial statements under accounting principles generally

accepted in the United States of America (“GAAP”) could change.

The Company has undertaken several steps to meet the requirements for withdrawal of its election to be regulated as a BDC, including (i) preparing a plan of operations in contemplation of such a change to the status of

the Company, (ii) evaluating potential investments in real estate assets that will allow the Company to transition to direct real estate asset investments, (iii) reviewing the potential adjusted investment strategy with potential capital providers,

and (iv) consulting with outside counsel as to the requirements for withdrawing its election as a BDC.

If this proposal is approved, the Company expects to continue operating as a BDC for a period of time in which it focuses on identifying and investing in real estate assets.

During this transition period, the Company may liquidate some of its

securities portfolio.

The Company expects that it will elect to withdraw the election within 30 days of stockholder approval and will immediately begin to transition away from a securities portfolio.

By the end of the first year after withdrawal of

its election, the Company anticipates that its securities portfolio will comprise less than 20% of its assets.

Investment Strategy

While we remain a BDC, our investment objective is to generate current income and capital appreciation through debt and equity real estate-related investments.

Our Independent Directors (as defined in Part II, Item 10

of this Annual Report on Form 10-K) review our investment policies with frequency, at least annually, to confirm that our policies are in the best interests of our stockholders.

Each such determination and the basis thereof are contained in the

minutes of our Board of Directors meetings.

We seek to accomplish our objective by rigorously analyzing the net asset value (“ NAV ”) of and risks associated with potential security acquisitions, and by acquiring securities at significant discounts to their

Although we may acquire any type of security by any method, we anticipate our acquisitions will generally be accomplished in the following ways:

Tender offers .

We acquire shares of non-traded REITs (" NTRs ") and other real estate companies via registered and non-registered tender offers (e.g., offers to purchase securities directly from

the existing holders).

This is generally our preferred acquisition method, as it allows us to name the price at which we are willing to buy such securities.

By purchasing securities at significant discounts to NAV, we believe we reduce the

risk of a loss of capital due to a decline in NAV while increasing total returns when the discount is realized.

Also, by purchasing seasoned securities that are several years old, we reduce our anticipated holding period and potentially

increase our annualized rate of return.

Direct loans and private placements .

We may occasionally make direct loans to private real estate companies and arrange for private placements of equity issued directly to us by private real estate

Purchases of small-cap REITs on the open market .

We believe that small-capitalization REITs (typically less than $250 million) are largely ignored by institutional investors and by Wall Street

analysts, and as a result they often trade for significant discounts to their NAV.

While these REITs tend to be highly illiquid with very small trading volumes, our smaller size allows us to focus on these REITs and to purchase their

securities in meaningful quantities.

Like shares of NTRs that we purchase at discounts to NAV, we believe these acquisitions can provide superior risk-adjusted returns.

Opportunistic property acquisitions .

If our stockholders approve the withdrawal of our BDC election, we may expand our investment strategy to

include acquisition of distressed real properties.

Like our other investments, we would expect to hold distressed properties and infuse funds as necessary to extract unrealized value.

The third offering commenced shortly thereafter and ended on October 31, 2020 .

The Parent Company’s wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT subsidiary.

started its operation on January 1, 2017, and the financial statements of TRS have been consolidated with the Parent Company’s consolidated financial statements beginning with the quarter ended March 31, 2017.

On December 20, 2017, a wholly owned

subsidiary of TRS, MacKenzie NY Real Estate 2 Corp.

(“MacKenzie NY 2”), was formed for the purpose of making certain limited investments in New York companies, and its financial statements have been consolidated with the Parent Company beginning

with the quarter ended March 31, 2021.

On May 20, 2020, the Parent Company formed an operating partnership, MacKenzie Realty Operating Partnership, LP (the “Operating Partnership”) for the purpose of acquiring and consolidating our wholly-owned and

majority-owned subsidiaries within an entity that is able to offer tax-advantaged solutions to certain sellers.

The Operating Partnership first entered into a Contribution Agreement with a group of entities referred to as the Addison Group, owners of Addison Property Owner, LLC (“Property Owner”).

The Parent Company owns 100%

of the Class B Limited Partnership units of the Operating Partnership.

Property Owner owns a property known as the Addison Corporate Center.

On June 8, 2020, Addison Group exchanged its ownership in Property Owner for Class A Limited Partnership

units of the Operating Partnership.

Subsequent to the acquisition date, the Parent Company redeemed substantially all of the remaining Class A Limited Partnership units by issuing to each such Class A Limited Partner one share of the Company’s

common stock for each Class A Unit.

As a result, the Company owns substantially all of the Operating Partnership.

In March 2021, the Company together with its joint venture partners formed two operating companies:

Madison-PVT Partners LLC (“Madison”) and PVT-Madison Partners LLC (“PVT”), to acquire and operate two residential

apartment buildings located in Oakland, California.

The Company owns 98.45% and 98.75% of equity units of Madison and PVT, respectively.

The joint venture partners own the remaining 1.55% and 1.25% equity units of Madison and PVT, respectively, and

also hold a carried interest in both companies.

Investment Objective

Our investment objective is to generate current income and capital appreciation through the acquisition of real estate assets and debt and equity real estate-related investments.

Independent Directors (as defined in Part III, Item 10 of this Annual Report on Form 10-K) review our investment policies periodically, at least annually, to confirm that our policies are in the best interests of our stockholders.

determination and the basis thereof are contained in the minutes of our Board of Directors meetings.

We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant

discounts to their net asset value.

Our Corporate Information

Our offices are currently located at 89 Davis Road, Suite 100, Orinda, CA 94563 and our telephone number is (925) 631-9100 or (800) 854-8357.

We relocated to our current address from 1640 School Street, Moraga, CA

94556 in June 2018.

While we remain a BDC, we engage in various investment strategies to achieve our overall investment objectives.

The strategy we select depends upon, among other things, market opportunities, the skills and experience

of the Adviser's investment team and our overall portfolio composition.

We generally seek to acquire securities that produce ongoing distributable income for investors, yet with a primary focus on purchasing such securities at a discount from what

the Adviser estimates to be the actual value of the real estate underlying the securities.

Investments Strategy

Following withdrawal of its election to be regulated as a BDC, the Parent Company’s underlying investment strategy is very similar to the strategy it has historically followed.

The Parent Company

has and intends to continue to increase its control over its private investments, and to eventually consolidate those investments for financial reporting purposes.

It will conduct many of its operations through the Operating Partnership.

withdrawal of the BDC election will also allow the Parent Company to expand its investment pool to include real, physical assets, as opposed to only investment securities.

The Parent Company believes that this expanded pool of potential investments

will allow access to risk-adjusted returns consistent with its investment objective, while allowing the Parent Company to maintain its REIT status.

We engage in various investment strategies to achieve our overall investment objectives.

The strategy we select depends upon, among other things, market opportunities, the

skills and experience of the Advisers’ investment team and our overall portfolio composition.

We generally seek to acquire assets that produce ongoing distributable income for investors, yet with a primary focus on purchasing such assets at a

discount from what the Advisers estimates to be the actual or potential value of the real estate.

The Company’s investment strategies since its inception have included making loans to or investments in previously syndicated projects that had encountered difficulties with occupancy, financing, tenant improvements

or other cash needs.

Since entering the recent recession, certain of our portfolio companies have encountered additional cash shortfalls, and, in one case so far, we have provided additional capital to the extent that we now own the majority of the

project (such as Addison Corporate Center).

We may encounter future opportunities to provide needed cash, and, in such cases, we would seek to consolidate the portfolio company into our financial statements, which is a key reason for dropping our

When evaluating opportunities to buy properties, we look for opportunistic and value-add situations similar to our approach to targeting real estate securities, including unique situations and value-added

opportunities.

We evaluate the broader market, the property’s position in the market, the needs our capital can address, and the track record of the sponsor or operator bringing the opportunity to us.

We do not generally engage brokers, and the

majority of our properties were acquired in “off market” transactions.

We invest in mid-market properties that may be overlooked by institutions.

We acquire mid-market properties that may be too small to

attract most institutions, and where we believe we can create long-term value for our stockholders utilizing the following investment strategies.

We invest in well-located properties with strong and stable cash flows in demographically attractive knowledge economic growth markets where we believe there exists significant potential

for medium-term capital appreciation through renovation or redevelopment, to reposition the asset and drive future rental growth.

Opportunistic .

We invest in properties available at opportunistic prices (i.e., at prices we believe are below those available in an otherwise efficient market) that exhibit some characteristics of

distress, such as operational inefficiencies, significant deferred capital maintenance or broken capital structures providing an opportunity for a substantial portion of total return attributable to appreciation in value.

Invest-to-Own .

We may invest in the development of properties in target markets where we believe we can capture significant development premiums upon completion.

We generally use a mezzanine loan or

convertible preferred equity structure which provides income during the development stage and/or the ability to capture development premiums at completion by exercising our conversion rights to take ownership.

The Company intends to continue its historical activities related to tender offers for shares of non-traded REITs in order to boost its short-term cash flow and to support its distributions, subject to the constraint

that such securities will not exceed 20% of our portfolio.

The Company believes this niche strategy will allow it to pay distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance

that some portion of any distribution is not a return of capital.

This strategy can boost cash-flow in two ways:

(1) most such non-traded REITs pay regular cash distributions (even though COVID-19 prompted some to temporarily stop or cut back the

distributions);

and (2) when such non-traded REIT shares are liquidated or sold and the Company realizes a profit from having purchased the shares at a discount to the underlying net asset value.

Types of Investments

We target the following real estate-related investments.

Real Estate-Related Limited Partnerships.

Limited partnerships which may be public or private, and which were formed primarily to own real property.

They may actively operate the property, they may

develop the property, or they may passively own property operated by a third party.

Corporations or trusts that are formed to own real property and are exempted from federal corporate income tax if they distribute at least 90.0% of their net income in the form of dividends

to their stockholders.

Other Real Estate-Related Investments.

May include equity interests in LLCs, tenancies-in-common, mortgages, loans, bonds, or any security whose underlying value derives from real estate.

invest in other real estate-related investment entities or, if our shareholders approve the withdrawal of our BDC election, direct ownership of real property.

We do not invest in general partnerships, joint ventures, or other entities that do

not afford limited liability to their security holders.

However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities.

Targeted Securities

Our Adviser has advised on a significant number of investments in the real estate industry.

We leverage this prior investing experience to target attractive investments in the real estate industry.

Securities to be

acquired by us generally consist of the following:

Securities Issued by Owners of Real Property.

We acquire securities issued by limited partnerships, REITs or other investment entities that have invested directly or indirectly in real property, real

estate joint ventures, or other real property-based investments.

We buy securities issued by entities owning a variety of property types, including apartments, shopping centers, office buildings, nursing homes, mini-warehouses, and hotels.

Direct Real Property Obligations, Derivatives, and Other Securities.

We may also acquire (i) individual mortgages secured by real property (i.e., originate, or purchase outstanding loans secured by

real estate), (ii) securities of issuers that own mortgages secured by income-producing real property, and (iii) using no more than 20.0% of our capital available for investment, securities of issuers that own assets other than real estate.

We generally acquire securities in one of two ways:

Securities Issued Previously Pursuant to a Registration Statement.

In general, we seek to acquire securities originally registered by the issuer with the SEC.

These target securities are typically

public limited partnership interests and shares in REITs issued by national real estate syndicators and companies.

These issuers typically have hundreds or thousands of limited partners or stockholders and own numerous real property assets.

Securities Issued in Private Transactions.

We may acquire securities that are or were privately placed by issuers that (i) are limited partnerships, REITs, or other real estate-related entities, (ii)

have sold their securities in private offerings to only a limited number of investors who have met suitability standards that are generally higher than those imposed by public partnerships, and (iii) have invested in only a single parcel or a

few parcels of real property.

We target the following real estate-related investments which may include equity interests in LLCs, tenancies-in-common, mortgages, loans, bonds, other real estate-related investment entities, or direct ownership of

real property.

Since dropping our BDC status, we intend to purchase primarily majority interests in properties so that we can consolidate them into our financial statements.

We may purchase non-controlling interests, but we intend that such

investments will constitute less than 20% of our portfolio.

We do not invest in general partnerships or other entities that do not afford limited liability to their security owners.

However, limited liability entities in which we invest may hold

interests in general partnerships, joint ventures, or other non-limited liability entities.

Investment Selection

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The current members of the investment team are C.E.

Patterson, Glen Fuller, Chip Patterson, Robert Dixon, Paul Koslosky, and

Patterson, Glen Fuller, Chip Patterson, Robert Dixon, Angche Sherpa, and

Christine Simpson.

The investment strategy involves a team approach, whereby potential transactions are screened by various members of the investment team.

Our process for acquiring targeted real estate-related securities typically involves three steps:

(i) identifying securities of the type we may be interested in acquiring;

(ii) evaluating the securities to estimate

their value to us, and (iii) either acquiring securities on national markets or locating securities holders who may be interested in selling such securities on secondary markets.

Different circumstances may require different procedures, or different

combinations of procedures, and we adjust our acquisition strategy to fit the circumstances.

Our process for acquiring targeted real estate typically involves three steps:

(i) identifying assets of the type we may be interested in acquiring;

(ii) evaluating the assets to estimate their value or potential

value to us, and (iii) either acquiring such assets directly or through our network of real estate partners.

Different circumstances may require different procedures, or different combinations of procedures, and we adjust our acquisition strategy

to fit the circumstances.

Nonetheless, the typical stages of our investment selection process are as follows:

Deal Generation/Origination

We source investments through long-standing relationships with industry contacts, brokers, commercial and investment bankers, entrepreneurs, services providers such as lawyers and accountants, as well as current and

former clients, portfolio companies and investors.

Our Adviser's investment team supplements these lead generators by also utilizing broader marketing efforts, such as advertisements in real estate periodicals, newspapers and other publications,

attendance at prospective borrower industry conventions, active calling efforts to smaller private equity firms and sponsors, web presence and search tools.

We source investments through long-standing relationships with real estate operators, developers, industry contacts, brokers, commercial and investment bankers, entrepreneurs, services providers such as lawyers and

accountants, as well as current and former clients, portfolio companies and investors.

Our Adviser’s goal is to establish relationships with successful operators with proven track records in each region in which we operate, and to grow and deepen

those relationships as they prove successful.

In screening potential investments, the Adviser’s investment team utilizes a value-oriented investment philosophy and commits resources to managing downside exposure.

Due Diligence

In conducting due diligence, the Adviser uses publicly available information as well as information from its relationships with former and current management teams, consultants, competitors and investment bankers.

Adviser's due diligence typically includes:

In conducting due diligence, the Adviser uses publicly available information as well as information from its relationships with former and current management teams, investors, consultants, competitors and investment

Our Adviser's due diligence typically includes:

review of operating history, appraisals, market reports, vacancies, deferred maintenance;

review of historical and prospective financial information and regulatory disclosures;

research relating to the company's management, industry, markets, products and services and competitors;

research relating to the property’s management, industry, markets, products and services and competitors;

verification of collateral;

asset and business value appraisals by third party advisers.

Upon the completion of due diligence and a decision to proceed with an investment, the investment professionals leading the investment present the investment opportunity to the Adviser's investment team, which then

determines whether to pursue the potential investment.

Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and independent accountants prior to the closing of the investment, as well as other outside

third-party advisers, as appropriate.

Any fees and expenses incurred by the Adviser to oversee due diligence investigations undertaken by third parties are subject to reimbursement by us, if not otherwise reimbursed by the prospective borrower, which

reimbursements are in addition to any management or incentive fees payable by us under the advisory agreement amended and restated effective October 1, 2017, and subsequently amended October 23, 2018 (the " Investment Advisory Agreement ”).

Managerial Assistance

We offer and provide significant managerial assistance to our portfolio companies, and must continue to do so while we remain a BDC.

This assistance could involve, among other things, monitoring the operations of our

portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance.

We may receive fees for these services.

The Adviser provides

such managerial assistance on our behalf to portfolio companies that request this assistance.

appraisals or opinions of value by third party advisers.

Upon the completion of due diligence and a decision to proceed with an investment, the investment professionals leading the investment present the investment opportunity to

the Adviser's investment team, which then determines whether to pursue the potential investment.

Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and independent accountants prior to the closing

of the investment, as well as other outside third-party advisers, as appropriate.

Any fees and expenses incurred by the Adviser to oversee due diligence investigations undertaken by third parties are subject to reimbursement by us, if not

otherwise reimbursed , which reimbursements are in addition to any management or incentive fees payable by us under the advisory agreements.

Our Adviser monitors our investments on an ongoing basis.

Our Adviser has several methods of evaluating and monitoring the performance and fair value of the portfolio companies in which we invest, which include the

Our Adviser has several methods of evaluating and monitoring the performance and value of the assets in which we invest, which include the following:

Assessment of success in adhering to business plans and compliance with covenants;

Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

Comparisons to other portfolio companies in the industry, if any;

Periodic and regular contact with property management, to discuss financial position, requirements and accomplishments;

Comparisons to other properties in the geographic area or sector, if any;

Attendance at and participation in our board meetings;

Review of monthly and quarterly consolidated financial statements and financial projections for portfolio companies.

Review of monthly and quarterly consolidated financial statements and financial projections for properties.

Valuation Procedures

We determine our NAV consistent with accounting principles generally accepted in the United States of America (“ GAAP ”) and the 1940 Act.

Securities for which market quotations are readily available on an

exchange will be valued at the closing price on the day closest to the valuation date.

We determine our net asset value consistent with GAAP.

Securities for which market quotations are readily available on an exchange will be valued at the closing price on the day

closest to the valuation date.

Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days.

value securities that do not trade on a national exchange, we may use published secondary market trading information.

Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Adviser or Board of Directors, does

not accurately measure fair value, which we expect will represent a substantial portion of our portfolio, are valued as follows:

(i) the securities are initially valued by the investment professionals responsible for the portfolio investment;

preliminary valuation conclusions are documented and discussed with our senior management;

and (iii) the Board of Directors reviews these preliminary valuations and, where appropriate and necessary, valuations by third-party valuation firms, and uses

such valuations, as adjusted by the Board if appropriate, to determine the fair value of the securities.

To value securities that do not trade on a national exchange,

we may use published secondary market trading information.

Adviser or Board of Directors, does not accurately measure fair value, which we expect will represent a substantial portion of our portfolio, are valued as follows:

(i) the securities are initially valued by the investment professionals responsible

for the portfolio investment;

(ii) preliminary valuation conclusions are documented and discussed with our senior management;

and (iii) the Board of Directors reviews these preliminary valuations and, where appropriate and necessary, valuations by

third-party valuation firms, and uses such valuations, as adjusted by the Board if appropriate, to determine the fair value of the securities.

Securities for which market data are not readily available or for which a pricing source does not accurately measure value may include the following:

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and any change in such valuations, on our consolidated financial statements.

While we remain a BDC, we compete for investments with investment funds (including private equity funds).

Additionally, because competition for investment opportunities generally has increased among alternative

investment vehicles, such as hedge funds, those entities have begun to make non-traditional investments, including investments in real estate companies.

As a result of these new entrants, competition for investment opportunities in real estate and

real estate-related companies may intensify.

Many of these entities have greater financial and managerial resources than we do or may not be subject to comparable regulation.

We believe the experience and contacts of the Adviser, our responsive and

efficient investment analysis and decision-making processes, the investment terms we offer, and our willingness to make smaller investments allows us to successfully compete with these competitors.

For additional information concerning the

competitive risks we face, see "Risk Factors — Risk Relating to Our Business and Structure — We may face increasing competition for investment opportunities."

We do not currently have any employees.

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Our Adviser may hire additional investment professionals, based upon its needs.

We also entered into an

administration agreement with MacKenzie (the “ Administration Agreement ”), under which we reimburse MacKenzie for our allocable portion of overhead and other expenses incurred by it in performing its obligations, including rent, the fees and

expenses associated with performing compliance functions, and the compensation of our chief financial officer, our chief compliance officer (or "CCO"), and any administrative support staff.

entered into an administration agreement with MacKenzie (the “Administration Agreement”), under which we reimburse MacKenzie for our allocable portion of overhead and other expenses incurred by it in performing its obligations, including rent, the

fees and expenses associated with performing compliance functions, and the compensation of our chief financial officer, our chief compliance officer (or "CCO"), and any administrative support staff.

We have also retained MacKenzie as our transfer

agent and have been reimbursing MacKenzie for certain software development costs.

Compliance with governmental laws and regulations, including those relating to environmental matters

On December 31, 2020, we withdrew our election to be regulated as a BDC under the 1940 Act.

Thus, we are no longer regulated as a BDC and are no longer subject to the

regulatory provisions of the 1940 Act.

However, as we operate as a REIT and own real estate properties, we are required to comply with various governmental laws and regulations, including the Exchange Act and those relating to environmental

Environmental Matters

We have invested, and expect to continue to invest, in real property assets, which are subject to laws and regulations relating to the protection of the environment and human health and safety.

Environmental laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were

This liability could be substantial.

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 property as collateral for future

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 material expenditures by us.

Future laws, ordinances or regulations may impose material environmental liability.

Additionally, our tenant companies’ operations, the existing

condition of land when we buy it, 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.

In addition, there are various local, state and

federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance.

Any material expenditures, fines, or damages we must pay

will reduce our ability to make distributions.

Other Regulations

State and federal laws in this area are constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws,

including where deemed necessary, obtaining environmental assessments of properties that we acquire;

however, we will not obtain an independent third-party environmental assessment for every property we acquire.

In addition, any such assessment

that we do obtain may not reveal all environmental liabilities or whether a prior owner of a property created a material environmental condition not known to us.

The cost of defending against claims of liability, of compliance with environmental

regulatory requirements, of remediating any contaminated property, or of paying personal injury claims would materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution.

Board Approval of the Investment Advisory Agreement

Our investment advisory and administrative services agreements were approved by our board of directors in May 2012, and, following amendments, re-approved most recently in October 2018.

Such approvals were made in

accordance with, and on the basis of an evaluation satisfactory to our board of directors as required by Section 15(c) of the 1940 Act and applicable rules and regulations thereunder, including a consideration of, among other factors, (i) the nature,

quality, and extent of the advisory and other services to be provided under the agreements, (ii) the investment performance of the personnel who manage investment portfolios with objectives similar to ours, to the extent available, (iii) comparative

data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives, to the extent available and (iv) information about the services to be performed and the personnel performing such services under each of the

Our investment advisory and administrative services agreements were approved by our Board of Directors in January 2021.

Such approvals were made on the basis of an evaluation satisfactory to our

Board of Directors including a consideration of, among other factors, (i) the nature, quality, and extent of the advisory and other services to be provided under the agreements, (ii) the investment performance of the personnel who manage REITs with

objectives similar to ours, to the extent available, (iii) comparative data with respect to advisory fees or similar expenses paid by other REITs with similar investment objectives, to the extent available and (iv) information about the services

to be performed and the personnel performing such services under each of the agreements.

Our internet address is www.mackenzierealty.com

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