Roots

The Company's future depends materially on Larry Dorfman and Daniel Dorfman, who are the key principals of both the Sponsor and the Manager. Loss of either individual would involve significant time and expense to replace and could significantly delay or prevent achievement of business objectives.

“In particular, Larry Dorfman and Daniel Dorfman are critical to the management of our business and operations and the development of our strategic direction. The loss of the services of Larry and/or Daniel Dorfman, or other executive officers or key personnel and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.”

The Company is critically dependent on Larry Dorfman and Daniel Dorfman, who are the founders, co-managers of the Sponsor, and principal officers of the Manager. Loss of either individual would significantly impair operations and achievement of investment objectives.

“In particular, Larry Dorfman and Daniel Dorfman are critical to the management of our business and operations and the development of our strategic direction. The loss of the services of Larry and/or Daniel Dorfman, or other executive officers or key personnel and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.”

The Manager and its affiliates have no prior experience managing a portfolio of assets to comply with REIT requirements. Failure to properly manage REIT compliance could cause the Company to lose its REIT status and adversely affect Unit values.

“Our Manager and its affiliates have no prior experience managing a portfolio of assets to comply with REIT requirements. REITs are subject to numerous complex requirements in order to maintain their REIT status, including income and asset composition tests. Our Manager and its affiliates have no prior experience managing a portfolio in the manner intended to comply with such requirements.”

The operating agreement requires binding arbitration in Atlanta, Georgia for all disputes including claims under federal securities laws. Investors waive their right to jury trial and cannot bring class action lawsuits. Arbitration may involve higher costs, limited discovery, and fewer remedies than litigation.

“Our Operating Agreement contains an arbitration provision in Article 9 that requires that all parties to the Operating Agreement in any action, lawsuit or proceeding, whether in contract or in tort, relating to any dispute arising under or in connection with the operating agreement or any transaction described in the operating agreement or to any dispute between the parties, including claims arising from federal securities laws, (i) waive their right to trial by jury and (ii) submit to binding arbitration in Atlanta, Georgia, in accordance with the rules of the American Arbitration Association.”

The Company loans offering proceeds to the Sponsor (Seed InvestCo, LLC) at 7% per annum to fund property acquisitions, with loans secured by the real property and repaid upon sale of the curated property to the Company. As of December 31, 2024, net advances to the Sponsor totaled $14,467,006.

“As of December 31, 2024 and 2023, the Company had advanced net amounts of $14,467,006 and $7,465,015, respectively, to the Sponsor for certain acquisitions identified. Advances bore interest at 6% through September 30, 2023 and bear interest at 7% beginning October 1, 2023.”

All compensation and fee arrangements between the Company and its Manager (Roots REIT Management, LLC) and Sponsor (Seed InvestCo, LLC) were not determined through arm's-length negotiations. The Manager is wholly owned by the Sponsor, and the Sponsor's founders (Larry and Daniel Dorfman) control both entities. The Manager receives substantial nonperformance-based management fees and acquisition/disposition fees that could reduce incentive to maximize returns.

“All of the agreements and arrangements between such parties, including those relating to compensation, are not the result of arm's length negotiations. Contractual rates are determined by our Manager and affiliates based on industry standards and expectations of what our Manager would be able to negotiate with a third party on an arm's length basis and are intended to approximate prevailing market rates, but there can be no assurances that the contracts are in fact consistent with the prevailing market rates or terms.”

All fee and compensation arrangements between the Company and its Manager (a wholly-owned subsidiary of the Sponsor) are not determined at arm's length. The Manager is entitled to substantial non-performance-based compensation (10% of revenue management fee) regardless of portfolio performance, which may reduce its incentive to seek attractive risk-adjusted returns.

“Our Manager is a wholly owned subsidiary of our Sponsor. We pay fees and expenses to our Manager, as outlined in the Management Compensation section, which were not determined on an arm's length basis. Our Manager may benefit by us retaining ownership of our assets at times when our Members may be better served by the sale or disposition of our assets due to the property management fee payable to our Manager each month.”

The Sponsor (and Manager) acquires, renovates, and sells properties to the Company at or below appraised fair market value, realizing built-in gain on each transfer. This creates a structural conflict because the Sponsor profits from each asset sale to the Company and the pricing is not determined at arm's length. 170 of the Company's 188 properties were purchased from the Sponsor.

“It is likely that the Sponsor will realize gain when it sells a curated real property asset to the Company. For example, if the Sponsor acquires a single-family home for $100,000, and puts $50,000 into the property, and the subsequent third-party certified real estate appraiser appraises the fair market value of the property at $200,000, the Sponsor will realize gain equal to the difference of the price it sells the curated property to the Company (which will be no more than the fair market value, or in this case $200,000) less the Sponsor's all-in cost of $150,000.”

The Sponsor (Seed InvestCo, LLC) acquires, renovates, and sells properties to the Company at or below appraised fair market value, but systematically realizes built-in gains on these transfers. In 2023 the built-in gain was approximately $1,764,282 and in 2024 approximately $1,492,488. These transactions are not arm's-length, and the Manager may be influenced by the timing of such gains.

“it is likely that the Sponsor will realize gain when it sells a curated property to the Company. For example, if the Sponsor acquires a single-family home for $100,000, and puts $50,000 of renovation and/or repair costs into the property, and the subsequent third-party certified real estate appraiser appraises the fair market value of the curated property at $200,000, the Sponsor will realize gain equal to the difference of the price it sells the curated property to the Company (which will be no more than the fair market value, or in this case $200,000) less the Sponsor's all-in cost of $150,000.”