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2345 Properties Securing Loans, which in Economic Substance Represent an Investment in Real Estate, including Acquisition Development and Construction (“ADC”) Arrangements [SAB Topic 1I]
us SEC - Financial Reporting Manual
2345.1 Overview
A registrant may make a loan that is secured by a real estate operating property. SAB Topic 1I provides that financial statements for such properties may be required where the economic substance of the loan represents an investment in real estate, such as in an "ADC arrangement" as defined in AICPA's 2/10/86
Notice to Practitioners in the CPA Letter. The characteristics of these loans are found in Exhibit I to Practice Bulletin 1. In these arrangements, a lender participates in the expected residual profit and shares in the risk and rewards of the owner.
2345.2 Financial Statement Requirements in 1933 Act filings
a. Financial statements of operating properties securing such loans are required for any single property for which 10% of offering proceeds (or total assets at the latest audited year-end balance sheet date, if greater) has been or will be loaned. The information required by Items 14 & 15 of Form S-11 also is required.
b. Where no single loan exceeds 10%, but the aggregate of such loans exceeds 20%, a narrative description of the properties and arrangements is required in a footnote to the financial statements.
2345.3 Financial Statement Requirements in 1934 Act Filings
a. If over 20% of the registrant's total assets are invested in a single loan, financial statements of the underlying operating property are required (except in Annual Reports to Shareholders where only summary data is required).
b. If over 10%, but less than 20%, of the registrant's total assets is invested in a single loan, summarized financial information of the operating property is required.
c. Where individual loans are not significant but in the aggregate exceed 20% of the registrant's total assets, narrative description of the properties and arrangements is required in a footnote to the financial statements.
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