Relationship with the Hunt Companies, Inc. and its Affiliates
On January 18, 2018, we entered into a series of transactions with affiliates of Hunt. Having simultaneously agreed to terminate the management agreement with our prior manager, Oak Circle, we entered into a new Management Agreement with our Manager. Additionally, another affiliate of Hunt, HCEH, purchased 1,539,406 shares of our common stock in a private placement, and purchased a further 710,495 shares of common stock from XL Investments, resulting in Hunt owning an aggregate of 9.50% of our common stock upon closing of the transaction.
As a consequence of affiliates of Hunt serving as our Manager, maintaining a significant ownership stake in us, and originating loans and credit risk securities that we will purchase and hold on our balance sheet, the potential exists for conflicts of interest to arise in our relationship with Hunt. In addition, after an initial grace period of 12 months, we will be required to pay our Manager an incentive fee if our Core Earnings (as defined in our Management Agreement) exceed a hurdle rate of 8% per annum. This may encourage our Manager to take excessive risks with our investment, hedging or business strategies in order to manage our Core Earnings such that they will exceed the hurdle rate, and therefore that an incentive fee will be payable. Our board of directors is responsible for supervising our Manager, and ensuring that in managing our day-to-day operations, our Manager does so in a manner that appropriately addressees any potential conflicts of interest. There is no guarantee that the policies and procedures adopted by us, the terms and conditions of the Management Agreement or the policies and procedures adopted by our Manager, Hunt and their respective affiliates, will enable us to identify, adequately address or mitigate all potential conflicts of interests.
We entered into a Shareholder Agreement with HCEH pursuant to which the Company granted HCEH the right to designate one designee to the Companys board of directors. The right granted to HCEH expires at such time as HCEHs and its affiliates beneficial ownership of the Companys common stock as determined pursuant to Rule 13d-3 under the Exchange Act of 1934, is less than 5%.
On April 30, 2018, as more particularly described in our Current Report on Form 8-K filed on April 30, 2018, the Company acquired Hunt CMT Equity LLC for an aggregate purchase price of approximately $68 million. The assets of Hunt CMT Equity LLC comprised commercial mortgage loans financed through a collateralized loan obligation (Hunt CRE 2017-FL1, Ltd.), a licensed commercial mortgage lender (Hunt CMT Finance, LLC) and eight loan participations from a Hunt affiliate. The assets of Hunt CRE 2017-FL1, Ltd. comprised performing floating-rate commercial mortgage loans with a portfolio balance of $339.4 million and $9.8 million in cash available for reinvestment at the acquisition date. The securitization pool was financed by investment-grade notes with a notional principal balance of $290.7 million and a net carrying value of $287.6 million after accounting for unamortized discount. Additionally, the Company paid $0.1 million for the assets acquired with the licensed lender and $6.2 million for the loan participations.
On May 16, 2018, our board of directors granted HCEH and James C. Hunt (collectively, the Hunt Investors) an exemption from the 9.8% ownership limitation subject to a Hunt Investors ownership limit of 11.8%. As of April 18, 2019, the Hunt Investors collectively owned 10.2% of our common stock.
During the second quarter of 2018, the Company sold four available-for-sale securities with a total notional balance of $82.9 million to Hunt Financial Securities, LLC, an affiliate of our Manager.
Hunt Financial Securities, LLC, an affiliate of our Manager, acted as a placement agent related to Hunt CRE 2018-FL2, Ltd. in the third quarter and earned fees of $208,477 in such capacity.
Hunt Servicing Company, LLC, an affiliate of our Manager, was appointed the sub-servicer to the servicer with respect to mortgage assets for Hunt CRE 201-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. by KeyBank in its capacity as servicer with both CLOs. Additionally, Hunt Servicing Company, LLC was appointed by KeyBank as servicer to act as special servicer of any serviced mortgage that becomes a specially serviced mortgage loan.
During the year ended December 31, 2018, Hunt CRE 2017-FL1, Ltd. purchased nine loans with an unpaid principal balance of $151.1 million at par and Hunt CRE 2018-FL2, Ltd. purchased 24 loans with an unpaid principal balance of $257.8 million at par from Hunt Finance Company, LLC, an affiliate of our Manager.
From January 1, 2019 through April 18, 2019, Hunt CRE 2017-FL1, Ltd. purchased five loans with an unpaid principal balance of $56.6 million at par and Hunt CRE 2018-FL2, Ltd. purchased one loan with an unpaid principal balance of $18.0 million at par and nine loan participations with an unpaid principal balance of $4.0 million at par from Hunt Finance Company, LLC, an affiliate of our Manager.