Clipper Realty (CLPR) risk factors, FY2024 10-K

Risks Related to Real Estate

1. 01changes in rental housing subsidies provided by the government and/or other government programs that favor single-family rental housing or owner-occupied housing over multifamily rental housing
2. 02Multifamily residential properties are subject to rent stabilization regulations, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by tenants that their rents exceed such specified maximum amounts
3. 03The application of rent stabilization to apartments in our multifamily residential properties limits the amount of rent we are able to collect, which may have a material adverse effect on our cash flows and our ability to fully take advantage of the investments that we are making in our properties
4. 04Our portfolio’s revenue is currently generated from eight properties
5. 05We may be unable to renew leases or lease currently vacant space or vacating space on favorable terms or at all as leases expire or terminate, which could adversely affect our financial condition, results of operations and cash flow
6. 06As of February 23, 2024, NYC notified us of its intention to terminate its lease at 250 Livingston Street effective August 23, 2025. As of that date, 342,496 of rentable square feet of commercial space will be available
7. 07We engage in development and redevelopment activities, which could expose us to different risks that could adversely affect us, including our financial condition, cash flow and results of operations
8. 08changes in the pricing and availability of buyers and sellers of such properties
9. 09Our dependence on rental revenue may adversely affect us, including our profitability, our ability to meet our debt obligations and our ability to make distributions to our stockholders
10. 10Reimbursements from government agencies under the Article 11 Agreement might be lower than expected and costs to implement the mandatory capital improvements might be higher than expected
11. 11Real estate investments are relatively illiquid and may limit our flexibility
12. 12Competition could limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities, which may adversely affect us, including our profitability, and impede our growth
13. 13Competition may impede our ability to attract or retain tenants or re-lease space, which could adversely affect our results of operations and cash flow
14. 14We are subject to potential losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage
15. 15We are subject to risks from natural disasters such as severe weather
16. 16Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties
17. 17We may become subject to liability relating to environmental and health and safety matters, which could have an adverse effect on us, including our financial condition, cash flows and results of operations
18. 18We may incur significant costs complying with the ADA and similar laws (including but not limited to the Fair Housing Amendments Act of 1988 (“FHAA”) and the Rehabilitation Act of 1973), which could adversely affect us, including our future results of operations and cash flows
19. 19We may acquire properties or portfolios of properties through tax-deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets
20. 20in the event that we obtain a minority position in a joint venture, we may not have significant influence or control over such joint venture or the performance of our investment therein

Risks Related to Our Business and Operations

1. 21Capital and credit market conditions, including higher interest rates, may adversely affect our access to various sources of capital or financing and/or the cost of capital, which could affect our business activities, dividends, earnings and common stock price, among other things
2. 22Increased inflation may have a negative effect on rental rates and our results of operations
3. 23We may from time to time be subject to litigation or government investigations that could have an adverse effect on our financial condition, results of operations, cash flow and the market value of our common stock
4. 24Our subsidiaries may be prohibited from making distributions and other payments to us
5. 25We are a smaller reporting company and, because we have opted to use the reduced reporting requirements available to us, certain investors may find investing in our securities less attractive

Risks Related to Our Organization and Structure

1. 26The ability of stockholders to control our policies and effect a change of control of our Company is limited by certain provisions of our charter and bylaws and by Maryland law
2. 27The provisions in our charter regarding the removal of directors and the advance notice provisions of our bylaws, among others, could delay, defer or prevent a transaction or a change of control of our Company that might involve a premium price for holders of our common stock or otherwise be in their best interest
3. 28Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board
4. 29Our board of directors may change our policies without stockholder approval
5. 30Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of OP Units and of LLC units in our predecessor entities, which may impede business decisions that could benefit our stockholders
6. 31Our charter contains a provision that expressly permits our officers to compete with us
7. 32We may have assumed unknown liabilities in connection with the formation transactions, which, if significant, could adversely affect our business
8. 33We may pursue less vigorous enforcement of terms of employment agreements with certain of our executive officers, which could negatively impact our stockholders
9. 34We may experience conflicts of interest with certain of our directors and officers and significant stockholders as a result of their tax positions
10. 35We hold a portion of our cash and cash equivalents in deposit accounts that could be adversely affected if the financial institutions holding such deposits fail

Risks Related to Our Indebtedness and Financing

1. 36We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs
2. 37As of December 31, 2024, we had $1,275.4 million of total indebtedness, all of which was property-level debt. See Note 4 of the accompanying “Notes to Consolidated Financial Statements” for a discussion of the Company’s property-level debt
3. 38place us at a competitive disadvantage to competitors that have relatively less debt than we have
4. 39Changing interest rates could increase interest costs and adversely affect our cash flows and the market price of our securities
5. 40Our tax protection agreement requires our Operating Partnership to maintain certain debt levels that otherwise would not be required to operate our business
6. 41We may not have sufficient cash flow to meet the required payments of principal and interest on our debt or to pay distributions on our common stock at expected levels
7. 42Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt
8. 43Hedging activity may expose us to risks, including the risks that a counterparty will not perform and that the hedge will not yield the economic benefits we anticipate, which could adversely affect us
9. 44Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities
10. 45A portion of our distributions may be treated as a return of capital for U.S. federal income tax purposes, which could reduce the basis of a stockholder’s investment in shares of our common stock and may trigger taxable gain

Risks Related to Our Status as a REIT

1. 46Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock
2. 47If our special voting stock and the Class B LLC units are treated as a single stock interest in the Company, we could fail to qualify as a REIT
3. 48Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our investments
4. 49We may be subject to a 100% penalty tax on any prohibited transactions that we enter into, or may be required to forego certain otherwise beneficial opportunities in order to avoid the penalty tax on prohibited transactions
5. 50REIT distribution requirements could adversely affect our liquidity and adversely affect our ability to execute our business plan
6. 51The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders
7. 52Our ability to provide certain services to our tenants may be limited by the REIT rules, or may have to be provided through a TRS
8. 53Our property taxes could increase due to property tax rate changes or reassessment, which could impact our cash flow

Risks Related to Ownership of Our Common Stock

1. 54The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders
2. 55passage of legislation or other regulatory developments that adversely affect us or our industry, such as the Housing Stability and Tenant Protection Act of 2019, which was signed into law in New York in June 2019
3. 56There are restrictions on ownership and transfer of our common stock
4. 57Future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution