UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: December 31, ~~2015~~2016

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission file number 000-53917

TALON REAL ESTATE HOLDING CORP.

(Exact Name of Registrant as Specified in its Charter)

Utah

26-1771717

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

5500 Wayzata Boulevard, Suite 1070, Minneapolis, MN 55416

(Address of Principal Executive Offices, Including Zip Code)

(612) 604-4600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x ~~(Do~~Emerging ~~not~~Growth ~~check~~Company ~~if a smaller reporting company)~~x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

AsIndicate by ofcheck ~~June~~mark ~~30,~~whether ~~2015,~~ the ~~last business day of the~~ registrant’s ~~most~~is ~~recently~~an ~~completed~~“emerging ~~second~~growth ~~fiscal~~company” ~~quarter,~~(as ~~the~~defined ~~aggregate~~in ~~market~~Section ~~value of shares of the registrant’s common stock held by non-affiliates of the registrant~~ 2(~~based~~a)(19) ~~upon the price~~ of ~~$1.25 at which our common stock last traded on~~ the ~~Over the Counter Bulletin Board prior to such date~~Securities Act). ~~was~~Yes ~~approximately~~x ~~$8.1~~No ~~million.~~¨

~~The~~If an ~~number~~emerging ofgrowth ~~shares~~company, ofindicate by check mark if the registrant’s ~~common~~has ~~stock,~~elected ~~par~~not ~~value~~to ~~$0.001~~use ~~per~~the ~~share,~~extended ~~outstanding~~transition asperiod offor complying ~~March~~with ~~30,~~any ~~2016~~new ~~was~~or ~~17,057,680~~revised ~~shares~~financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. Yes ¨ No x

~~[DOCUMENTS~~As ~~INCORPORATED~~of BYJune ~~REFERENCE]~~30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of shares of the registrant’s common stock held by non-affiliates of the registrant (based upon the price of $1.00 at which our common stock last traded on the Over the Counter Bulletin Board prior to such date) was approximately $17,607,680.

2The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of March 17, 2017 was 17,265,981 shares.

TALON REAL ESTATE HOLDING CORP.

ANNUAL REPORT ON FORM 10-K

Table of Contents

		Page
PART I
Item 1.	Business	51
Item 1A.	Risk Factors	1612
Item 1B.	Unresolved Staff Comments	3130
Item 2.	Properties	3130
Item 3.	Legal Proceedings	3130
Item 4.	Mine Safety Disclosures	3130
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3231
Item 6.	Selected Financial Data	3332
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3432
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	4576
Item 9A.	Controls and Procedures	4576
Item 9B.	Other Information	4678
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	4779
Item 11.	Executive Compensation	4880
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5484
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5585
Item 14.	Principal Accounting Fees and Services	5787
PART IV
Item 15.	Exhibits, Financial Statement Schedules	5887
SIGNATURES		5988

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements regarding us, our business prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described under the heading “Risk Factors” included in this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission that advise interested parties of the risks and factors that may affect our business.

3-i-

~~JUMPSTART~~Jumpstart Our ~~OUR~~Business ~~BUSINESS~~Startups ~~STARTUPS~~Act ~~ACT DISCLOSURE~~Disclosure

Our Company qualifies as an “emerging growth company,” as defined in Section 2(a) (19) of the Securities Act of 1933, as amended (the “Securities Act”), as amended by the Jumpstart Our Business Startups Act (the “JOBS Act”). An issuer qualifies as an “emerging growth company” if it has total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and will continue to be deemed an emerging growth company until the earliest of:

• the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1.0 billion or more;

• the last day of the fiscal year of the issuer ~~during~~following ~~which~~the itfifth ~~had~~anniversary ~~total~~of ~~annual~~the ~~gross~~date ~~revenues~~of the first sale of ~~$1.0~~common ~~billion~~equity orsecurities ~~more~~of the issuer pursuant to an effective registration statement;

• the date on which the issuer has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or

~~the~~• ~~last day of~~ the ~~fiscal~~date ~~year~~on ofwhich the issuer ~~following~~is ~~the~~deemed ~~fifth~~to ~~anniversary~~be ofa ~~the~~“large ~~date~~accelerated offiler,” ~~the~~as ~~first~~defined ~~sale~~in ofSection ~~common~~240.12b-2 ~~equity securities~~ of the ~~issuer~~Securities ~~pursuant~~Exchange toAct anof ~~effective~~1934 ~~registration~~(the ~~statement;~~“Exchange Act”).

•

the date on which the issuer has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or

•

the date on which the issuer is deemed to be a “large accelerated filer,” as defined in Section 240.12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”).

As an emerging growth company, we are exempt from various reporting requirements. Specifically, we are exempt from the following provisions:

• Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires evaluations and reporting related to an issuer’s internal controls;

• Section ~~404~~14A(ba) of the ~~Sarbanes-Oxley~~Exchange Act ~~of 2002~~, which requires ~~evaluations~~an ~~and~~issuer ~~reporting~~to ~~related~~seek toshareholder anapproval ~~issuer’s~~of ~~internal~~the ~~controls~~compensation of its executives not less frequently than once every three years; and

• Section 14A(b) of the Exchange Act, which requires an issuer to seek shareholder approval of its so-called “golden parachute” compensation, or compensation upon termination of an employee’s employment.

Section 14A(a) of the Exchange Act, which requires an issuer to seek shareholder approval of the compensation of its executives not less frequently than once every three years; and

•

Section 14A(b) of the Exchange Act, which requires an issuer to seek shareholder approval of its so-called “golden parachute” compensation, or compensation upon termination of an employee’s employment.

Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. We have elected to use the extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

4-ii-

PART I

Item 1. Business

~~Business~~Overview

~~Overview~~We are a real estate investment company focused on investing in office, industrial, hospitality, and retail properties located in the Midwest and South Central regions of the United States. We target properties located in the area bounded by Minnesota to the north and Texas to the south, and by Illinois to the east and Colorado to the west (our “Target Area”), although we will consider properties outside this target area if we identify attractive opportunities. We believe these markets are currently under served in financing and market transaction options for which we can provide advantageous solutions. We believe the size and location of opportunities in this region will be a desirable fit for our real estate portfolio and can be pursued at attractive yields.

WeCorporate ~~are~~Information ~~a real estate investment company focused on investing in office, industrial~~ and retail properties located in the Midwest and South Central regions of the United States. We target properties located in the area bounded by Minnesota to the north and Texas to the south, and by Illinois to the east and Colorado to the west, although we will consider properties outside this target area if we identify attractive opportunities. We believe these markets are currently underserved in financing and market transaction options for which we can provide advantageous solutions. We believe the size and location of opportunities in this region will be a desirable fit for our real estate portfolio and can be pursued at attractive yields.History

~~Corporate~~We ~~Information~~were incorporated in the State of Utah on November 1, 2007, for the sole purpose of becoming the holding company of Guidebook, which converted from a Utah limited liability company to a Utah corporation on November 1, 2007. Guidebook was organized in the State of Utah as a limited liability company on June 16, 2003 and ~~History~~was focused on providing “do-it-yourself” instructional manuals for residential electrical, plumbing, and remodeling applications. On June 7, 2013, we entered into contribution agreements with members of 5130 Industrial Street, LLC (“5130 LLC”), and TalonRE, and with Talon OP, L.P. (“Talon OP”), collectively referred to as the “Formation Transactions” and changed our name to Talon Real Estate Holding Corp. On June 7, 2013, we sold all of the outstanding shares of Guidebook to Kim McReynolds, divesting ourselves of our historic “do-it-yourself” instructional manual business. The purchase price for the divestiture primarily consisted of the buyer’s agreement for Guidebook to indemnify and hold our company harmless from certain liabilities arising from the sale.

WeSubstantially ~~were~~all ~~incorporated in the State~~ of ~~Utah~~our onassets ~~November~~are 1held by, ~~2007,~~and ~~for~~our ~~the~~operations ~~sole~~are ~~purpose~~conducted ofthrough, ~~becoming~~Talon ~~the holding company of Guidebook~~OP, which ~~converted~~we ~~from~~refer ~~a Utah limited liability company~~ to aas ~~Utah~~our ~~corporation~~“Operating ~~on November 1, 2007~~Partnership”. ~~Guidebook~~We ~~was~~are ~~organized in~~ the sole ~~State~~general partner of ~~Utah~~the asOperating ~~a limited liability company on June 16~~Partnership, ~~2003~~ and ~~was focused on providing “do-it-yourself” instructional manuals for residential electrical~~, ~~plumbing,~~as ~~and remodeling applications. On June 7~~such, ~~2013,~~ we ~~entered~~generally ~~into~~have ~~contribution~~the ~~agreements~~exclusive ~~with~~power ~~members~~to ofmanage ~~5130~~and ~~Industrial~~conduct ~~Street,~~the business ~~LLC (“5130 LLC”),~~ and ~~TalonRE,~~affairs ~~and~~of ~~with~~the ~~Talon~~Operating OPPartnership, ~~L.P.~~subject ~~(“Talon OP”), collectively referred~~ to ascertain ~~the~~limited ~~“Formation~~approval ~~Transactions”~~ and ~~changed~~voting ~~our~~rights ~~name~~of tothe ~~Talon~~limited ~~Real Estate Holding Corp. On June 7~~partners, that ~~2013,~~are wedescribed ~~sold~~more ~~all~~fully ofherein. ~~the~~As ~~outstanding shares~~ of ~~Guidebook~~December to31, ~~Kim McReynolds~~2016, ~~divesting~~we ~~ourselves~~owned 65% of ~~our historic “do-it-yourself” instructional manual business. The purchase price for~~ the ~~divestiture~~common ~~primarily~~units ~~consisted~~ of the ~~buyer’s~~Operating ~~agreement~~Partnership ~~for~~that holds ~~Guidebook to indemnify and hold~~ our ~~company~~portfolio ~~harmless~~of ~~from~~commercial ~~certain liabilities arising from the sale~~properties.

~~Substantially~~Organizational ~~all~~Structure ofin our assets are held by, and our operations are conducted through, Talon OP, which we refer to as our Operating Partnership. We are the sole general partner of the Operating Partnership, and, as such, we generally have the exclusive power to manage and conduct the business and affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners, which are described more fully herein. As of December 31, 2015, we owned 65% of the common units of the Operating Partnership which holds our portfolio of commercial properties.2016

~~Organizational Structure~~-1-

5Table of Contents

WeOrganizational ~~intend~~Structure ~~to elect to be taxed as a REIT no sooner than the calendar year~~ in which we qualify to be taxed as such under the Revenue Code, and it is advantageous to our shareholders for the Company to do so. Because we plan to conduct substantially all of our operations through our Operating Partnership, we intend to utilize an Umbrella Partnership Real Estate Investment Trust structure, or UPREIT, although we are currently not a REIT. This structure is designed to provide tax deferral benefits to property owners who contribute their property to our company. We believe using an UPREIT structure will give us an advantage in acquiring properties from persons who may not otherwise sell their properties because of unfavorable tax consequences or it may make our offer more competitive than the pure cash buyer. The UPREIT structure allows deferral of gain recognition by an owner of appreciated real estate if that owner contributes the real estate to the Operating Partnership in exchange for partnership interest. The contributor’s gain is deferred until the partnership interest is exchanged for our holding company’s common stock.2019

~~Our~~We ~~principal~~intend ~~executive~~to ~~offices~~elect ~~are~~to ~~located~~be attaxed ~~5500~~as ~~Wayzata~~a ~~Boulevard~~REIT no ~~Suite~~sooner ~~1070,~~than ~~Minneapolis,~~the ~~Minnesota~~calendar year in which we qualify to be taxed as such under the Revenue Code, and it is advantageous to our shareholders ~~telephone~~for ~~number~~the isCompany ~~612-604-4600~~to do so. ~~Our~~Because ~~web~~we ~~address~~plan isto ~~www.talonreit.com.~~conduct ~~The~~substantially ~~information~~all onof our operations through our Operating Partnership, we orintend ~~otherwise~~to ~~accessible~~utilize ~~through~~an Umbrella Partnership Real Estate Investment Trust structure, or UPREIT, although we are currently not a REIT. This structure is designed to provide tax deferral benefits to property owners who contribute their property to our ~~website~~company. We ~~does~~believe using an UPREIT structure will give us an advantage in acquiring properties from persons who may not ~~constitute~~otherwise asell their ~~part~~properties because of ~~this~~unfavorable ~~report~~tax consequences or ~~any~~it ~~other~~may ~~report~~make orour ~~document~~offer wemore ~~file~~competitive ~~with~~than orthe ~~furnish~~pure cash buyer. The UPREIT structure allows deferral of gain recognition by an owner of appreciated real estate if that owner contributes the real estate to the ~~Securities~~Operating ~~and~~Partnership ~~Exchange~~in ~~Commission~~exchange for partnership interest. The contributor’s gain is deferred until the partnership interest is exchanged for our holding company’s common stock.

~~Distribution~~Our ~~Policy~~principal executive offices were located at 100 South First Street, #583357, Minneapolis, Minnesota, 55458-3357. Our telephone number is 612-604-4600. Our web address is www.talonreit.com. The information on, or otherwise accessible through, our website does not constitute a part of this report or any other report or document we file with or furnish to the Securities and Exchange Commission.

We intend to make quarterly distributions to our common shareholders when available. Upon electing REIT status, U.S. federal income tax law requires that a REIT distribute annually at least 90% of its net taxable income, excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income, including capital gains.-2-

ToTable ~~the extent that in respect~~ of any calendar year after we have elected to become a REIT, cash available for distribution is less than our taxable income, we could be required to sell assets to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. We generally will not be required to make distributions with respect to activities conducted through any Taxable REIT Subsidiary (“TRS”).Contents

~~Dividends~~Distribution and other distributions will be authorized by our board of directors in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including actual results of operations, restrictions under the law of our state of organization, our financial condition, our need to meet the distribution requirements of a REIT when elected, and other factors described below. We cannot assure you that our distributions will be made or sustained or that our board of directors will not change our distribution policy in the future. Any dividends or other distributions we pay in the future will depend upon our actual results of operations, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our assets, our operating expenses, interest expense and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Risk Factors.”Policy

We ~~anticipate~~intend ~~that~~to ~~our~~make quarterly distributions to ~~generally~~our ~~will~~common beshareholders ~~taxable~~when asavailable. ~~ordinary~~Upon ~~income~~electing toREIT ~~our shareholders~~status, ~~although~~U.S. afederal ~~portion~~income oftax ~~the~~law ~~distributions~~requires ~~may~~that bea ~~designated~~REIT bydistribute annually usat asleast ~~qualified~~90% ~~dividend~~of ~~income~~its ornet ~~capital~~taxable ~~gain~~income, orexcluding ~~may~~net ~~constitute a return of~~ capital. Wegains, ~~will~~and ~~furnish~~that ~~annually~~it topay ~~each~~tax ofat ~~our~~regular ~~shareholders~~corporate arates ~~statement setting forth distributions paid during~~ to the ~~preceding~~extent ~~year~~that ~~and~~it ~~their~~annually ~~characterization~~distributes asless ~~ordinary~~than ~~income,~~100% ~~return~~ of ~~capital,~~its ~~qualified~~REIT ~~dividend~~taxable income, orincluding capital ~~gain~~gains.

6To the extent that in respect of any calendar year after we have elected to become a REIT, cash available for distribution is less than our taxable income, we could be required to sell assets to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. We generally will not be required to make distributions with respect to activities conducted through any Taxable REIT Subsidiary (“TRS”).

Dividends and other distributions will be authorized by our board of directors in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including actual results of operations, restrictions under the law of our state of organization, our financial condition, our need to meet the distribution requirements of a REIT when elected, and other factors described below. We cannot assure you that our distributions will be made or sustained or that our board of directors will not change our distribution policy in the future. Any dividends or other distributions we pay in the future will depend upon our actual results of operations, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our ~~Strategy~~actual results of operations will be affected by a number of factors, including the revenue we receive from our assets, our operating expenses, interest expense and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Risk Factors.”

~~Commercial~~We ~~real~~anticipate ~~estate~~that ~~trends~~our ~~have~~distributions generally ~~been~~will ~~negative~~be ~~for~~taxable anas ~~extended~~ordinary ~~period~~income ofto ~~time~~our ~~but~~shareholders, wealthough ~~believe~~a ~~that~~portion ~~there~~of ~~is evidence that~~ the ~~real~~distributions ~~estate market is in recovery. We believe there~~ may be ~~many~~designated ~~potential~~by us ~~sellers~~as ~~that~~qualified ~~are~~dividend ~~seeking~~income anor ~~exit~~capital ~~strategy~~gain, ~~now~~ or inmay ~~the~~constitute ~~near~~a ~~future~~return ~~and~~of wecapital. ~~may~~We bewill ~~able~~furnish annually to ~~offer~~each ~~these~~of ~~sellers~~our shareholders ~~some advantages that make us~~ a ~~more~~statement ~~competitive~~setting ~~buyer.~~forth ~~Our~~distributions ~~objective~~paid isduring tothe ~~accumulate~~preceding ~~quality~~year ~~properties~~and attheir ~~attractive~~characterization ~~yields~~as ~~primarily~~ordinary inincome, return ~~our~~of ~~target~~capital, ~~area~~qualified ~~from~~dividend ~~Minnesota~~income toor ~~Texas,~~capital ~~Denver to Chicago~~gain.

WeOur believe there is significant opportunity to acquire quality property by providing liquidity to the market. We believe that our structure will provide investors more liquid equity with diversified real estate exposure. In turn, we anticipate that we will encourage real property owners to sell their properties to us increasing the size of our company and providing us with more diversified real estate holdings. We provide advantageous solutions for property owners due to our tax structure, which is similar to an UPREIT. This structure may be advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, stay invested in real estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted on a one for one basis for Talon Real Estate Holding Corp. common stock under the ticker “TALR” and/or Talon OP preferred units which provide rights to certain distributions and can later be redeemed for the liquidation preference and any accrued and unpaid distributions. We are currently not a REIT.Strategy

~~Our~~Commercial ~~strategy~~real isestate totrends ~~offer~~have ~~these~~been ~~tax-deferred~~positive for ~~solutions~~an toextended ~~real~~period ~~estate~~of ~~owners~~time. asWe ~~part~~believe ofthere ~~diversifying~~may ~~our~~be ~~shareholder~~many ~~base,~~potential ~~creating~~sellers ~~liquidity~~that ~~and~~are ~~shareholder~~seeking ~~value. We~~an ~~currently~~exit ~~believe~~strategy ~~office~~now ~~and~~or ~~industrial~~in ~~properties~~the near ~~offer~~future ~~the~~and ~~most~~we ~~attractive~~may ~~return~~be onable ~~equity~~to ~~metrics. Retail~~offer ~~will~~these ~~also~~sellers besome ~~part~~advantages ~~our~~that ~~overall~~make ~~portfolio~~us ~~but~~a wemore ~~anticipate~~competitive itbuyer. ~~will~~Our ~~contribute~~objective ~~less~~is to accumulate ~~the~~quality ~~overall~~properties ~~target~~at ~~portfolio~~attractive ~~over~~yields ~~the~~primarily ~~long-term~~in ~~than~~our ~~office~~Target ~~and industrial properties~~Areas.

~~The~~We ~~middle~~believe ~~corridor~~there ofis ~~the~~significant ~~United~~opportunity to ~~States~~acquire ~~continues~~quality property by providing liquidity to ~~offer~~the ~~higher~~market. ~~cap~~We ~~rates~~believe ~~compared~~that toour ~~the~~structure ~~west~~will ~~and~~provide ~~east~~investors ~~coasts~~more ~~and~~liquid equity with diversified real estate exposure. In turn, we anticipate that we will ~~continue~~encourage real property owners to ~~explore~~sell ~~additional~~their properties ~~investment~~to ~~options~~us ~~within~~increasing ~~this~~the ~~region~~size toof ~~continue~~our company and providing us with more diversified real estate holdings. We provide advantageous solutions for property owners due to our ~~mission~~tax structure, which is similar to ~~provide~~an ~~competitive~~UPREIT. ~~returns~~This structure may be advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, stay invested in ~~our~~real ~~sector~~estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted on a one for one basis for Talon Real Estate Holding Corp. common stock under the ticker “TALR” and/or Talon OP preferred units which provide rights to certain distributions and can later be redeemed for the liquidation preference and any accrued and unpaid distributions. We are currently not a REIT.

We seek to provide investors the opportunity to have liquidity with real estate exposure in a geographically diversified portfolio with tactical asset allocation. Our strategy is to expand our property holdings to seek diversification by focusing on the following key elements:-3-

·Table of Contents

WeOur ~~will~~strategy ~~target~~is ~~office,~~to ~~industrial~~offer ~~and~~these ~~retail~~tax ~~properties~~deferred solutions ~~between Minnesota and Texas~~ to ~~the~~real ~~north~~estate ~~and~~owners ~~south,~~as ~~and~~part ~~Illinois~~of ~~and~~diversifying ~~Colorado~~our toshareholder ~~the~~base, ~~east~~creating liquidity and ~~west,~~shareholder ~~ranging~~value. inWe ~~size~~currently believe ~~from 10~~hospitality,~~000~~ toretail ~~500,000~~and ~~square~~student ~~feet~~housing ~~although~~properties weoffer ~~may~~the ~~acquire~~most ~~properties~~attractive ~~outside~~return ofon ~~these~~equity ~~parameters~~metrics.

·The middle corridor of the United States continues to offer higher cap rates compared to the west and east coasts and we will continue to explore additional investment options within this region to continue our mission to provide competitive returns in our sectors.

~~The~~We ~~target~~seek ~~market value for our properties is expected~~ to beprovide ininvestors the ~~range~~opportunity to ofhave ~~$1.0~~liquidity ~~million~~with toreal ~~$50~~estate ~~million,~~exposure ~~although~~in wea ~~might~~geographically ~~acquire~~diversified ~~larger~~portfolio orwith ~~smaller~~tactical ~~properties~~asset ~~depending~~allocation. onOur ~~the~~strategy is ~~opportunities available~~ to usexpand ~~and~~ our ~~access~~property holdings to ~~capital~~seek ordiversification ~~ability~~by tofocusing ~~issue~~on ~~equity~~the ~~interests~~following askey ~~consideration.~~elements:

· We will target office, industrial, hospitality and retail properties in our Target Area, ranging in size from 10,000 to 500,000 square feet although we may acquire properties outside of these parameters.

~~Our~~· The target market value for our properties ~~ideally~~is ~~will~~expected to be ~~strategically~~in ~~situated~~the inrange ~~metropolitan~~of ~~areas~~$1.0 ~~not~~million ~~traditionally~~to ~~explored~~$50 bymillion, ~~institutional~~although ~~investors.~~we ~~These~~might ~~may~~acquire ~~include~~larger ~~secondary~~or ~~and~~smaller ~~tertiary~~properties ~~markets~~depending inon the opportunities available to us and our ~~geographic~~access ~~territory~~to capital or ability to issue equity interests as consideration.

· Our target properties ideally will be strategically situated in metropolitan areas not traditionally explored by institutional investors. These may include secondary and tertiary markets in our geographic territory.

· We plan to invest in both core income-producing properties requiring relatively small improvements or enhancements and value-added properties that will require more significant investments of capital or management attention (including, but not limited to, leasing vacant space or extending expiring leases) that we expect to provide current income as well as the increased potential for higher long-term value to our company. Our long-term plan is to invest in value-added properties while maintaining a significant part of our portfolio in core properties. Our investment allocation between these two types of properties may significantly fluctuate in the short term as we seek the best opportunities.

7Our Competitive Strengths

~~Our~~We ~~Competitive~~believe ~~Strengths~~the following competitive strengths distinguish us from other property owners and will enable us to capitalize on the economic conditions in our target real estate markets as we seek to expand our portfolio:

We· ~~believe~~Experienced ~~the~~Management ~~following~~Team ~~competitive~~with ~~strengths~~Extensive ~~distinguish~~Experience usand ~~from~~Network. ~~other~~Our ~~property~~management ~~owners~~team, led by MG Kaminski, our Chief Executive Officer has extensive experience in the real estate industry and ~~will~~has ~~enable~~cultivated usan extensive network of contacts that we expect to ~~capitalize~~tap onto ~~the~~identify ~~economic~~acquisition ~~conditions~~opportunities. Mr. Kaminski has over 25 years of experience in ~~our~~purchasing, ~~target~~selling, managing, leasing, and constructing commercial real estate ~~markets~~where ashe weowned ~~seek~~over 2.6 million square feet. This square footage represented 32 buildings in office, industrial and retail space. His further experience includes financing and structuring real estate deals through traditional banking institutions and brokerage firms. This diverse and extensive experience in all aspects of commercial real estate creates unique insight in the day-to-day ~~expand~~operations ~~our~~as well as strategic portfolio: level management of commercial properties. He is well prepared to respond to all manners of tenant, property, financing and market issues, and he has significant knowledge and an extensive network of contacts in the Minneapolis/St. Paul metropolitan area and other similar markets in the Midwest to drive the acquisition and financing pipeline. He also has significant asset management experience, serving as President of Wayzata Capital Management, LLC from August 1996 to December 2012.

·-4-

~~Experienced~~Table Management Team with Extensive Experience and Network. Our management team, led by MG Kaminski, our Chief Executive Officer, and Eun Stowell, our Chief Financial Officer, has extensive experience in the real estate industry and has cultivated an extensive network of contacts that we expect to tap to identify acquisition opportunities. Mr. Kaminski has over 25 years of experience in purchasing, selling, managing, leasing, and constructing commercial real estate where he owned over 2.6 million square feet. This square footage represented 32 buildings in office, industrial and retail space. His further experience includes financing and structuring real estate deals through traditional banking institutions and brokerage firms. This diverse and extensive experience in all aspects of commercial real estate creates unique insight in the day-to-day operations as well as strategic portfolio level management of commercial properties. He is well prepared to respond to all manners of tenant, property, financing and market issues, and he has significant knowledge and an extensive network of contacts in the Minneapolis/St. Paul metropolitan area and other similar markets in the Midwest to drive the acquisition and financing pipeline. He also has significant asset management experience, serving as President of Wayzata Capital Management, LLC from August 1996 to December 2012. Ms. Stowell has worked in the investment industry her entire professional career and the last decade in the real estate industry. She most recently served as Chief Compliance Officer, Director of Finance and Accounting, and Collateralized Debt Obligation (CDO) Portfolio Manager at Castle Peak Capital Advisors, LLC, an asset management company investing and managing primarily residential mortgage loans and mortgage-backed securities, from December 2008 until joining us in June 2013. Prior to Castle Peak, she worked at both private and public investment firms as well as a large CPA firm and holds an inactive CPA license from the state of Minnesota. We believe our management team’s significant experience will help us successfully identify and execute on opportunities for expansion.Contents

· Committedand Incentivized Management Team. Our management team is committed to our operations and growth. As of December 31, 2016, our management team owned approximately 35% of our common stock thereby aligning management’s interests with those of our shareholders. We expect management will continue to hold a significant ownership interest in our company in the foreseeable future including if we become subject to the ownership requirements under the Internal Revenue Code of 1986 (the “Code”) for qualification as a REIT. To comply with these requirements, not more than 50% of the value of the outstanding shares of our stock (after taking into account options to acquire shares of stock) may be owned, directly, indirectly or through attribution, by five or fewer individuals at any time during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). Our board of directors has significant experience in leadership roles for both private and public companies and we expect that they will be an invaluable source of leadership for our company.

~~Committed~~· ~~and~~Disciplined ~~Incentivized~~Approach ~~Management Team. Our management team is committed~~ to ~~our~~Underwriting ~~operations~~ and ~~growth~~Due Diligence. AsBefore ofacquiring ~~December~~a 31property, ~~2015,~~ our ~~management~~ team ~~owned approximately 35%~~ of ~~our~~real ~~common~~estate ~~stock~~investment ~~thereby~~professionals, ~~aligning~~led ~~management’s~~by ~~interests with those of our shareholders~~Mr. WeKaminski, ~~expect~~applies ~~management will continue to hold~~ a ~~significant~~disciplined ~~ownership~~underwriting ~~interest~~and indue ~~our~~diligence ~~company~~process. inThe ~~the~~due ~~foreseeable~~diligence ~~future~~process ~~including~~focuses ifon weidentifying ~~become~~properties ~~subject~~in toour ~~the~~target ~~ownership~~market ~~requirements~~that ~~under~~are ~~the~~located ~~Code~~in ~~for~~metropolitan ~~qualification~~areas ~~as a REIT. To comply~~ with ~~these~~historically ~~requirements~~strong, ~~not~~stable ~~more~~economies ~~than~~and ~~50%~~stable ~~of the value of the outstanding shares of our stock (after taking into account options to acquire shares of stock) may be owned, directly, indirectly~~ or ~~through~~growing ~~attribution~~populations, bywith ~~five~~an oremphasis ~~fewer~~on ~~individuals~~areas ~~at any time during the last half~~ of agrowth ~~taxable~~within ~~year~~these ~~(other~~metropolitan ~~than the first year for which an election to be a REIT has been made)~~areas. ~~Our~~We ~~board~~also offocus ~~directors~~on ~~has~~identifying ~~significant~~properties ~~experience in leadership roles for both private and public companies and we expect~~ that ~~they~~can ~~will~~ be anacquired ~~invaluable~~at ~~source~~prices ofwe ~~leadership~~believe ~~for~~represent ~~our~~a ~~company~~strong value.

· UPREIT Structure. Because we intend to conduct our operations through the Operating Partnership, our organizational structure will be considered an Umbrella Partnership Real Estate Investment Trust, referred to in our industry as an UPREIT. This structure is designed to provide tax deferral benefits to property owners who contribute their property to our company. We believe using an UPREIT structure will give us an advantage in acquiring properties from persons who may not otherwise sell their properties because of unfavorable tax results. Generally, a sale or contribution of property directly to a REIT is a taxable transaction to the selling property owner. In an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of property may contribute the property to the Operating Partnership in exchange for (i) common units in the partnership and defer taxation of gain until the seller later elects to require the Operating Partnership to redeem all (but not less than all) of their common units for cash equal to the then-current value of an equal number of shares of our common stock (determined in accordance with and subject to adjustment under the partnership agreement of our Operating Partnership), or, at our election, as the sole general partner, on behalf of the Operating Partnership, to exchange their common units for shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of our stock or the Operating Partnership sells the property and/or (ii) Talon OP preferred units which provide rights to certain distributions and can later be redeemed for the liquidation preference and any accrued and unpaid distributions. This ability to offer tax-deferred purchase terms could make us a more attractive buyer to some property sellers. We are not currently qualified as a REIT and do not expect to qualify as a REIT during the current calendar year.

Disciplined Approach to Underwriting and Due Diligence. Before acquiring a property, our team of real estate investment professionals, led by Mr. Kaminski and Ms. Stowell, will apply a disciplined underwriting and due diligence process. The due diligence process will focus on identifying properties in our target market that are located in metropolitan areas with historically strong, stable economies and stable or growing populations, with an emphasis on areas of growth within these metropolitan areas. We also will focus on identifying properties that can be acquired at prices we believe represent a strong value.Competition

8We believe that the competition for leasing the properties we own and for completing acquisition opportunities we may target is highly fragmented. We compete with REITs, institutional investors, public and private real estate companies, as well as other commercial real estate operators and developers who have properties in our vicinity and the areas where we target acquisitions. We believe that the following competitive factors influence our ability to attract tenants to our current properties: location, price and terms, the appearance of properties and the speed at which we can execute leases.

·-5-

~~UPREIT~~Table Structure. Because we intend to conduct our operations through the Operating Partnership, our organizational structure will be considered an Umbrella Partnership Real Estate Investment Trust, referred to in our industry as an UPREIT. This structure is designed to provide tax deferral benefits to property owners who contribute their property to our company. We believe using an UPREIT structure will give us an advantage in acquiring properties from persons who may not otherwise sell their properties because of unfavorable tax results. Generally, a sale or contribution of property directly to a REIT is a taxable transaction to the selling property owner. In an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of property may contribute the property to the Operating Partnership in exchange for (i) common units in the partnership and defer taxation of gain until the seller later elects to require the Operating Partnership to redeem all (but not less than all) of their common units for cash equal to the then-current value of an equal number of shares of our common stock (determined in accordance with and subject to adjustment under the partnership agreement of our Operating Partnership), or, at our election, as the sole general partner, on behalf of the Operating Partnership, to exchange their common units for shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of our stock or the Operating Partnership sells the property and/or (ii) Talon OP preferred units which provide rights to certain distributions and can later be redeemed for the liquidation preference and any accrued and unpaid distributions. This ability to offer tax-deferred purchase terms could make us a more attractive buyer to some property sellers.Contents

~~Competition~~As leases at the properties we own and at any future properties we may acquire expire, we may encounter significant competition to renew or re-lease space. As a result, we may be required to provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination rights or below-market renewal options, or we may not be able to timely lease vacant space. In that case, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends may be adversely affected.

We believe that the ~~competition~~following ~~for~~competitive factors ~~leasing~~will ~~the~~influence ~~properties~~our weability ~~own~~to acquire additional properties and ~~for~~grow ~~completing~~our ~~acquisition~~business: ~~opportunities~~offer weprice, ~~may~~access ~~target~~to iscapital ~~highly~~and ~~fragmented.~~ability to Wequickly ~~compete~~identify ~~with~~and ~~REITs,~~consummate ~~institutional~~transactions. ~~investors,~~Competition ~~public~~may ~~and~~have ~~private~~the ~~real~~effect ~~estate~~of ~~companies,~~reducing asthe ~~well~~number asof ~~other~~suitable ~~commercial~~acquisition opportunities ~~real~~available ~~estate~~to ~~operators~~us and ~~developers~~increase ~~who~~the ~~have~~price ~~properties~~required into ~~our~~consummate ~~vicinity~~an ~~and~~acquisition ~~the~~opportunity. ~~areas~~Likewise, ~~where~~competition wewith sellers ~~target~~of ~~acquisitions.~~similar Weproperties ~~believe~~to ~~that~~locate ~~the~~suitable ~~following~~purchasers ~~competitive~~may ~~factors~~result ~~influence~~in ~~our~~us ~~ability~~receiving tolower ~~attract~~proceeds ~~tenants~~from any sale we might seek to ~~our~~make ~~current~~or ~~properties:~~in ~~location,~~us ~~price~~not ~~and~~being ~~terms,~~able ~~the~~to ~~appearance~~dispose of ~~properties~~a ~~and~~property ~~the~~at ~~speed~~a attime ~~which~~of weour ~~can~~choosing ~~execute~~due ~~leases~~to the lack of an acceptable return.

AsAcquisition leases at the properties we own and any future properties we may acquire expire, we may encounter significant competition to renew or re-lease space. As a result, we may be required to provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination rights or below-market renewal options, or we may not be able to timely lease vacant space. In that case, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends may be adversely affected.Pipeline

We ~~believe~~are ~~that~~continually ~~the~~engaging ~~following~~in ~~competitive~~internal research ~~factors~~as ~~will~~well ~~influence~~as ~~our~~informal ~~ability~~discussions towith ~~acquire~~various ~~additional~~parties ~~properties~~regarding ~~and grow~~ our ~~business:~~potential ~~offer~~interest ~~price,~~for ~~access~~acquisition toopportunities ~~capital~~in different ~~and~~states ~~ability~~throughout toour ~~quickly~~primary ~~identify~~geographic ~~and consummate transactions~~region. ~~Competition~~There ~~may~~is ~~have~~no ~~the~~assurance ~~effect~~that ofany ~~reducing~~currently ~~the~~available ~~number~~properties ofwill ~~suitable acquisition opportunities~~ remain available, toor usthat ~~and~~we ~~increase~~will ~~the~~pursue ~~price~~or ~~required~~complete toany ~~consummate~~of anthese ~~acquisition~~potential ~~opportunity. Likewise~~acquisitions, ~~competition~~at ~~with~~prices ~~sellers~~acceptable ~~of similar properties~~ to ~~locate suitable purchasers may result in~~ us ~~receiving lower proceeds from any sale we might seek to make~~ or ~~in us not being able to dispose of a property~~ at ~~a time of our choosing due to the lack of an acceptable return~~all.

~~Acquisition~~Talon ~~Pipeline~~RE, a wholly owned subsidiary of our Operating Partnership, has entered into a contribution agreement to acquire a 51% interest in 5130 LLC, subject to receiving consent to the transfer from the entity’s lender. 5130 LLC owns an industrial complex consisting of two properties with approximately 171,639 rentable square feet located in Maple Plain, MN. We entered into a contribution agreement to acquire the remaining interest in this entity which closed at the end of 2018. In March of 2019 we entered into a purchase and sale agreement to sell this asset.

WeOur ~~are~~Current ~~actively~~Property pursuing multiple property acquisition opportunities in different states throughout our primary geographic region. We are continually engaging in internal research as well as informal discussions with various parties regarding our potential interest in these types of potential acquisitions. There is no assurance that any currently available properties will remain available, or that we will pursue or complete any of these potential acquisitions, at prices acceptable to us or at all.Interests

9On June 7, 2013, we acquired a 49% interest in an entity that owns an industrial complex consisting of two buildings with approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area. The buildings currently have a combined occupancy of 85%. We entered into a contribution agreement to acquire the remaining interest in this entity which closed at the end of 2018. In March of 2019 we entered into a purchase and sale agreement to sell this asset.

On ~~January~~May 1129, ~~2016~~2014, ~~Talon~~we OPcompleted ~~had~~the ~~entered~~acquisition of ~~into~~ a ~~purchase~~227,000 ~~agreement~~square tofoot ~~acquire~~building asituated ~~portfolio~~on of20 ~~twelve~~acres ~~office and light industrial properties located throughout the greater twin cities area~~ of ~~Minnesota. The~~land ~~portfolio~~in ~~totals approximately 915~~Minnetonka,~~693~~ ~~square~~MN ~~feet~~that ~~with~~is currently 8892% ~~occupancy~~leased by ~~approximately~~over 55100 tenants who ~~and~~are ~~fits~~wholesale ~~well in our target acquisition strategy~~distributors. We expect to finance the acquisition of this property with some debt and equity after completing due diligence and financing activity customary for this type of transaction. There is no assurance that the acquisition will be completed pursuant to the purchase agreement or at all.

~~Talon~~On REJuly 2, 2014, we completed the acquisition of a ~~wholly~~thirteen ~~owned~~story ~~subsidiary~~office tower located in downtown St. Paul, MN totaling 856,223 total building square feet that was 62% occupied at time of ~~our~~acquisition ~~Operating~~and ~~Partnership~~is currently about 60% occupied by corporate and government tenants. In April 2015, ~~has~~we ~~entered~~executed ~~into~~a lease for a ~~contribution~~significant ~~agreement~~new totenant ~~acquire~~that awould ~~51%~~increase ~~interest~~the occupancy by over 21% in ~~5130~~the ~~LLC~~St. Paul building upon commencement of the lease. On January 27, ~~subject~~2017 towe ~~receiving~~executed ~~consent~~a second amendment to the ~~transfer~~lease ~~from~~which amended the ~~entity’s~~original ~~lender.~~lease ~~5130~~to ~~LLC~~a ~~owns~~seven-year anterm ~~industrial~~with ~~complex~~a ~~consisting~~commencement date of ~~two~~January ~~properties~~1, ~~with~~2018. ~~approximately~~We ~~171,639~~exchanged ~~rentable~~this ~~square~~asset ~~feet~~for ~~located~~Operating Units of First Capital Reit in ~~Maple~~June ~~Plain,~~of ~~Minnesota~~2018.

~~Our~~On ~~Current~~August ~~Property~~31, ~~Interests~~2018, Talon OP, L.P. (Talon-OP), which is the entity through which Talon Real Estate Holding Corp. (“Talon”) conducts substantially all of its business, entered into a Contribution Agreement (the “Antigua Contribution Agreement”) with First Capital Real Estate Trust, Incorporated (“Contributor”), through First Capital Real Estate Operating Partnership, L.P. (the “FC-OP”), its operating partnership, for the acquisition of the FC-OP’s interests in and to Goat Head Hill and Dutchman’s Bay, Island of Antigua (the “Antigua Project”), including, without limitation, that certain Memorandum of Agreement dated July 28, 2015 between Brown McLennon, the FC-OP and the government of Antigua and Barbuda regarding the development of hotels on the properties known as Dutchman’s Bay and Goat Head Hill on Antigua and the FC-OP’s 100% ownership interest in Goat Head Hill Resort Development Ltd and Dutchman’s Bay, an Antigua and Barbuda Corporation.

~~We currently own four properties located in and around the Minneapolis~~-~~St. Paul metropolitan area of Minnesota.~~ 6-

OnTable ~~June 7, 2013, we acquired a 49% interest in an entity that owns an industrial complex consisting~~ of two buildings with approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area. The buildings currently have a combined occupancy of 85%. We have entered into a contribution agreement to acquire the remaining interest in this entity, subject to receiving consent to the transfer from the entity’s lender.Contents

~~During~~Pursuant ~~2014,~~to wethe ~~completed~~Antigua ~~two acquisitions with a purchase price totaling approximately $58 Million and over 1 million in gross building square feet. On May 29~~Contribution Agreement, ~~2014, we completed~~ the ~~acquisition~~FC-OP ofagreed ato ~~227,000~~transfer ~~square~~all ~~foot building situated on 20 acres~~ of ~~land~~its interests in ~~Minnetonka,~~the MNAntigua ~~that~~Project isto ~~currently~~Talon-OP. ~~100%~~In ~~leased~~consideration byfor ~~over~~such ~~100~~transfer Talon-OP ~~tenants~~will ~~who~~issue ~~are~~to ~~wholesale distributors. On July 2, 2014, we completed~~ the ~~acquisition~~FC-OP of$30.0 amillion ~~thirteen story office tower located~~ in ~~downtown~~units ~~St. Paul, MN totaling 856,223 total building square feet that was 62% occupied at time~~ of ~~acquisition~~its ~~and~~limited ispartnership ~~currently~~interests ~~about~~(“LP ~~62%~~Units”), ~~occupied~~or ~~by corporate and government tenants. In April 2015~~12,000,000 LP weUnits ~~executed~~based aon ~~lease for~~ a ~~significant~~valuation ~~new~~of ~~tenant that would increase the occupancy by over 21% in the St~~$2.50 ~~Paul~~per ~~building~~LP ~~upon commencement of the lease~~Unit. On ~~April~~The 1,LP ~~2016,~~Units wewill ~~received~~be apayable ~~notice~~in ~~from~~three ~~this~~installments ~~tenant~~over ~~asserting~~ a ~~right~~two toyear ~~terminate~~period. The ~~the~~FC-OP ~~lease~~has ~~pursuant~~agreed to ~~certain~~sign ~~alleged~~such ~~defaults~~documents ~~related~~at to the ~~completion~~Closing ~~and~~as ~~delivery~~are ofnecessary ~~the~~in ~~building~~connection ~~and tenant improvements under the lease. We have responded to the tenant and are working~~ with ~~the~~its ~~tenant~~admission toas ~~resolve~~a ~~the~~limited ~~dispute. We~~partner of ~~intend to defend our position that~~ the ~~tenant does not have any rights to terminate the lease~~Company.

10On August 31, 2018, Talon OP, L.P. (Talon-OP), which is the entity through which Talon Real Estate Holding Corp. (“Talon”) conducts substantially all of its business, entered into a Contribution Agreement (the “Hotels Contribution Agreement”) with First Capital Real Estate Trust, Incorporated (“Contributor”), through First Capital Real Estate Operating Partnership, L.P. (the “FC-OP”), its operating partnership, for the acquisition of seven entities, as described in the Hotels Contribution Agreement. In consideration for such transfer Talon-OP will issue to the FC-OP $14,796,765.00 in units of its limited partnership interests (“LP Units”), or 5,918,706 LP Units based on a valuation of $2.50 per LP Unit. The aggregate value of the Companies/Hotels is $40,790,000 and a credit for existing indebtedness (“Existing Indebtedness”) of $25,993,235.00. The Existing Indebtedness is set forth on Exhibit B attached hereto. The FC-OP has agreed to sign such documents at the Closing as are necessary in connection with its admission as a limited partner of the Talon-OP.

~~The~~Pursuant ~~following~~to ~~table~~the ~~sets~~terms ~~forth~~of ~~information~~the ~~regarding~~Hotels ~~our~~Contribution Agreement, 5Talon-OP’s ~~largest~~obligation ~~tenants~~to asclose upon the acquisition is subject to customary conditions to closing. This series of ~~December~~transactions ~~31,~~closed ~~2015~~in December 2018.

Property Location(1)	Tenant Industry	Primary Use	Lease Expiration	Approx. Total Leased Square Feet	Percentage of Company's Rentable Square Feet	Base Rent for the Year Ended December 31, 2015		Percentage of Company’s Total Base Rent for the Year Ended December 31, 2015
180 E 5th Street, St. Paul, MN	Health Care	Office	4/30/2018	119,490	12%	$	1,819,176	24%
180 E 5th Street, St. Paul, MN	Government	Office	5/31/2020	89,130	9%	$	1,550,537	21%
180 E 5th Street, St. Paul, MN	Retail	Office	3/31/2020	102,577	10%	$	1,310,264	17%
5130 Industrial St, Maple Plain, MN	Construction	Industrial	2/28/2021	61,500	6%	$	409,928	5%
1350 Budd Ave, Maple Plain, MN	Construction	Industrial	2/28/2018	29,903	3%	$	108,711	1%

The following table sets forth information regarding our 5 largest tenants as of December 31, 2016.

(1)

Property Location⁽¹⁾	Tenant Industry	Primary Use	Lease Expiration		Approx. Total Leased Square Feet		Percentage of Company's Rentable Square Feet			Base Rent for the Year Ended December 31, 2016		Percentage of Company’s Total Base Rent for the Year Ended December 31, 2016
180 E 5^th Street, St. Paul, MN	Health Care	Office	4/30/2023	⁽³⁾		119,490		12	%	$	1,829,284		23	%
180 E 5^th Street, St. Paul, MN	Government	Office	5/31/2020			89,130		9	%	$	1,410,843		19	%
180 E 5^th Street, St. Paul, MN⁽²⁾	Retail	Office	3/31/2020			102,577		10	%	$	1,274,453		16	%
5130 Industrial St, Maple Plain, MN	Construction	Industrial	2/28/2021			59,500		6	%	$	225,628		3	%
1350 Budd Ave, Maple Plain, MN	Construction	Industrial	2/28/2018			29,903		3	%	$	106,517		1	%

(1) The two properties located in Maple Plain, MN lease approximately 15% of the Company’s rentable space and account for approximately 5% of the Company’s total base rent revenues for the year ended December 31, ~~2015~~2016. The property located in Minnetonka, MN leases approximately 16% of the Company’s rentable space and accounts for approximately 18% of the Company’s total base rent revenues for the year ended December 31, ~~2015~~2016. No major tenants are located at the property in Minnetonka, MN. The property located in St. Paul, MN leases approximately 41% of the Company’s rentable space and accounts for approximately 77% of the Company’s total base rent revenues for the year ended December 31, ~~2015~~2016.

~~The~~(2) ~~future~~On ~~square~~March ~~feet~~7, ~~expiring~~2017, ~~for~~tenant ~~the~~filed ~~current~~for ~~leases~~Chapter in11 ~~place~~bankruptcy asprotection offrom ~~December~~its ~~31, 2015 are as follows:~~creditors.

~~Years~~(3) ~~ending~~Five-year ~~December~~lease ~~31,~~extension signed in January 2017.

	5130 Industrial St	1350 Budd Ave	10301 Bren Rd	180 E 5th St
	Maple Plain, MN	Maple Plain, MN	Minnetonka, MN	St. Paul, MN		Total
2016	56,215	-	33,955	20,197		110,367
2017	-	-	-	25,554		25,554
2018	-	29,903	-	134,787		164,690
2019	-	-	130,518	708		131,226
2020	-	-	-	223,094		223,094
Thereafter	59,500	-	-	147,125	(1)	206,625
	115,715	29,903	164,473	551,465		861,556

(4)

In June 2018 First Trust was sold 100% for Operating Units of First Capital Operating Partnership, LP, a subsidiary of FCREIT, Inc., a Maryland corporation operating as a nontraded REIT.

~~(1)~~-7-

OnTable ~~April 1, 2016, the Company received a notice asserting a right to terminate the lease for 141,109 square feet pursuant to certain alleged defaults related to the completion and delivery~~ of the building and tenant improvements under the lease. The Company has responded and is working with the tenant to resolve the dispute and intends to defend its position that the tenant does not have any rights to terminate the lease.Contents

~~Management~~The ~~may~~future ~~periodically~~square ~~sell~~feet ~~certain~~expiring ~~properties including core income-producing and value-added properties~~ for ~~various~~the current ~~reasons~~leases ~~based~~in onplace ~~individual~~as ~~circumstances and opportunities. Proceeds from the sale~~ of ~~such~~December ~~properties may be used to repay related property debt~~31, ~~pay~~2016 ~~transaction~~are ~~expenses,~~as ~~acquire or invest in other properties and for general corporate purposes including satisfying existing liabilities.~~follows:

OnYears ~~January~~ending ~~28,~~December ~~2016~~31, we entered into a purchase and sale agreement with a privately held real estate company to sell the Minnetonka property for $26 million subject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction. There is currently approximately $13.4 million of debt on the property. Although both parties intend to close on the sale, there is no assurance that the sale will be completed pursuant to the purchase and sale agreement or at all.

	5130 Industrial St		1350 Budd Ave		10301 Bren Rd		180 E 5^th St
	Maple Plain, MN		Maple Plain, MN		Minnetonka, MN		St. Paul, MN		Total

2017		17,841		29,203		—		25,049		72,793
2018		—		—		—		20,981		20,981
2019		—		—		164,472		—		164,472
2020		—		—		—		—		0
2021		59,500		—		—		—		59,500
Thereafter		—		—		—		—		0
		77,341		29,903		164,472		46,030		317,746

~~Financings~~Management may periodically sell certain properties including core income-producing and ~~Leverage~~value-added ~~Policy~~properties for various reasons based on individual circumstances and opportunities. Proceeds from the sale of such properties may be used to repay related property debt, pay transaction expenses, acquire or invest in other properties and for general corporate purposes including satisfying existing liabilities.

WeFinancing ~~anticipate using a number of different sources to finance our acquisitions~~ and ~~operations,~~Leverage including cash flows from operations, issuance of debt securities or equity securities (which might be shares of our common or preferred stock or limited partnership units in the Operating Partnership that are redeemable for our common stock or provide rights to certain distributions), private financings (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. We also might consider joint venture or other partnering opportunities as they arise in order to acquire properties that would otherwise be unavailable to us. We may use the proceeds of our borrowings to acquire assets, to refinance existing debt or for general corporate purposes.Policy

~~Although~~We weanticipate ~~are~~using ~~not~~a ~~required~~number toof ~~maintain~~different sources ~~any~~to ~~particular~~finance ~~leverage~~our ~~ratio,~~acquisitions weand ~~intend~~operations, ~~when~~including ~~appropriate,~~cash toflows ~~employ~~from ~~prudent~~operations, ~~amounts~~issuance of ~~leverage~~debt ~~and~~securities toor ~~use~~equity securities ~~debt~~(which asmight abe ~~means~~shares of ~~providing~~our ~~additional~~common ~~funds~~or ~~for~~preferred ~~the~~stock ~~acquisition~~or oflimited ~~assets,~~partnership tounits ~~refinance~~in ~~existing~~the ~~debt~~Operating orPartnership that are redeemable for ~~general~~our ~~corporate~~common ~~purposes.~~stock Weor ~~expect~~provide rights to ~~use~~certain ~~leverage conservatively~~distributions), ~~assessing~~private ~~the~~financing ~~appropriateness~~(such ofas ~~new~~additional ~~equity~~bank credit facilities, which may or ~~debt~~may ~~capital~~not ~~based~~be onsecured ~~market~~by ~~conditions~~our assets), ~~including~~asset ~~prudent~~sales, ~~assumptions~~seller ~~regarding~~financing, ~~future~~property-level ~~cash~~mortgage ~~flow~~debt, ~~the~~or ~~creditworthiness~~any combination of ~~tenants~~these ~~and~~sources, ~~future~~to ~~rental~~the ~~rates.~~extent ~~Our~~available ~~articles~~to ofus, ~~incorporation~~or ~~and~~other ~~bylaws~~sources dothat ~~not~~may ~~limit~~become ~~the~~available ~~amount~~from oftime to time. Any debt that we incur may ~~incur~~be recourse or non-recourse and may be secured or unsecured. As ofWe ~~December~~also ~~31,~~might ~~2015,~~consider ~~our~~joint ~~ratio~~venture ofor ~~notes~~other partnering ~~payable~~opportunities toas ~~total~~they ~~assets~~arise ~~(net~~in oforder ~~accumulated~~to ~~depreciation)~~acquire ~~was~~properties ~~approximately~~that ~~74%~~would ~~based~~otherwise onbe ~~the~~unavailable ~~net~~to ~~depreciated~~us. ~~cost~~We may use the proceeds of our ~~properties~~borrowings to acquire assets, to refinance existing debt or for general corporate purposes.

~~Our~~Although ~~board~~we ofare ~~directors~~not ~~will~~required ~~consider~~to amaintain any ~~number~~particular ofleverage ~~factors~~ratio, inwe ~~evaluating~~intend, ~~the~~when ~~amount~~appropriate, ofto ~~debt~~employ ~~that~~prudent weamounts ~~may~~of ~~incur.~~leverage ~~Our~~and ~~board~~to ofuse ~~directors~~debt ~~may~~as ~~from~~a ~~time~~means toof providing ~~time~~additional ~~modify~~funds ~~its~~for ~~views~~the ~~regarding~~acquisition ~~the~~of ~~appropriate~~assets, ~~amount~~to ofrefinance existing debt ~~financing~~or infor ~~light~~general ofcorporate ~~then-current~~purposes. ~~economic~~We ~~conditions~~expect to use leverage conservatively, ~~relative~~assessing ~~costs~~the appropriateness of ~~debt~~new ~~and~~ equity or debt capital, based on market ~~value~~conditions, ofincluding prudent ~~our~~assumptions ~~portfolio,~~regarding ~~general~~future ~~conditions~~cash inflow, the ~~market~~creditworthiness ~~for~~of ~~debt~~tenants and ~~equity~~future ~~securities,~~rental ~~fluctuations~~rates. inOur ~~the~~articles ~~market~~of ~~price~~incorporation and ofbylaws ~~our~~do ~~common~~not ~~stock,~~limit ~~growth~~the ~~and~~amount ~~acquisition~~of ~~opportunities~~debt ~~and~~that ~~other~~we ~~factors~~may incur. ~~Our~~As ~~decision~~of toDecember ~~use~~31, ~~leverage~~2016, inour ~~the~~ratio ~~future~~of tonotes ~~finance~~payable ~~our~~to total assets (net ~~will~~of beaccumulated atdepreciation) ~~our~~was ~~discretion~~approximately ~~and~~86% ~~will~~based ~~not~~on bethe ~~subject~~net todepreciated ~~the~~cost ~~approval~~ of our ~~shareholders~~properties.

~~Regulation~~Our board of directors will consider a number of factors in evaluating the amount of debt that we may incur. Our board of directors may from time to time modify its views regarding the appropriate amount of debt financing in light of then-current economic conditions, relative costs of debt and equity capital, market value of our portfolio, general conditions in the market for debt and equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors. Our decision to use leverage in the future to finance our assets will be at our discretion and will not be subject to the approval of our shareholders.

Properties in which we plan to invest are subject to various covenants, laws, ordinances and regulations, including environmental regulations and regulations relating to common areas and fire and safety requirements.-8-

~~Americans~~Table ~~with~~of ~~Disabilities Act~~Contents

Properties in which we plan to invest are subject to Title III of Americans with Disabilities Act, or the ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.Regulation

~~Environmental~~Properties ~~Matters~~in which we plan to invest are subject to various covenants, laws, ordinances and regulations, including environmental regulations and regulations relating to common areas and fire and safety requirements.

~~Under~~Americans ~~various~~with ~~federal,~~Disabilities state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under, or migrating from such property or properties, including costs to investigate, clean up such contamination and liability for natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines, or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at any properties we own or acquire may expose us to third-party liability for costs of remediation and/or personal or property damage or may materially adversely affect our ability to sell, lease or develop the properties or to borrow using such property or properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if Act

12Properties in which we plan to invest are subject to Title III of Americans with Disabilities Act, or the “ADA”, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.

~~contamination~~Environmental is discovered on any properties we own or acquire, environmental laws may impose restrictions on the manner in which the property may be used or businesses may be operated, and these restrictions may require substantial expenditures.Matters

~~The~~Under ~~properties~~various ~~we own~~federal, state and ~~any~~local laws ~~properties~~and weregulations ~~acquire~~relating into the ~~future~~environment, ~~may~~as ~~contain,~~a ~~have~~current ~~contained,~~ or beformer ~~adjacent~~owner to or ~~near~~operator ~~other~~of ~~properties~~real ~~that~~property, ~~have~~we ~~contained~~may orbe ~~currently~~liable ~~contain~~for costs ~~storage~~and ~~tanks~~damages ~~for~~resulting from the ~~storage~~presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under, or ~~other~~migrating ~~hazardous~~from such property or ~~toxic~~properties, ~~substances.~~including ~~Similarly~~costs to investigate, ~~any~~clean ~~properties~~up wesuch ~~own~~contamination orand ~~acquire~~liability for ~~might~~natural ~~have~~resources. ~~been~~Such ~~used~~laws inoften impose liability without regard to whether the ~~past~~owner ~~for~~or ~~commercial~~operator knew of, or ~~industrial~~was ~~purposes~~responsible for, ~~that~~the ~~involve~~presence orof ~~involved~~such contamination, and the ~~use~~liability may be joint and several. These liabilities could be substantial and the cost of ~~petroleum~~any ~~products~~required remediation, removal, fines, or other ~~hazardous~~costs orcould ~~toxic~~exceed ~~substances,~~the orvalue ~~are~~of ~~adjacent~~the toproperty and/or ~~near~~our ~~properties~~aggregate assets. ~~that~~In ~~have~~addition, ~~been~~the presence of contamination or ~~are~~the ~~used~~failure ~~for~~to ~~similar~~remediate ~~commercial~~contamination at any properties we own or ~~industrial~~acquire may ~~purposes.~~expose Asus ato ~~result,~~third-party ~~such~~liability ~~property~~for costs of remediation and/or ~~properties~~personal ~~may~~or ~~have~~property ~~been~~damage or may bematerially ~~impacted~~adversely affect byour ~~contamination~~ability ~~arising~~to ~~from~~sell, lease or develop the ~~releases~~properties ofor ~~such~~to ~~hazardous~~borrow ~~substances~~using such property or ~~petroleum~~properties ~~products~~as collateral. IfIn weaddition, environmental ~~deem~~laws itmay ~~appropriate~~create liens on contaminated sites in favor of the ~~future,~~government wefor ~~may~~damages ~~take~~and ~~steps~~costs it incurs to address such ~~identified~~contamination. Moreover, if contamination oris ~~mitigate~~discovered ~~risks~~on ~~associated~~any ~~with~~properties ~~such~~we ~~contamination;~~own ~~however~~or acquire, weenvironmental ~~are~~laws ~~unable~~may toimpose restrictions ~~ensure~~on ~~that~~the ~~further~~manner ~~actions~~in ~~will~~which ~~not~~the beproperty ~~necessary.~~may Asbe aused ~~result~~or ofbusinesses ~~the~~may ~~foregoing~~be operated, weand ~~could~~these ~~potentially~~restrictions ~~incur~~may ~~material~~require substantial ~~liabilities~~expenditures.

~~Environmental~~The ~~laws~~properties ~~also~~we ~~govern~~own, and any properties we acquire in the ~~presence~~future, ~~maintenance~~may ~~and~~contain, ~~removal~~have ofcontained, ~~asbestos-containing~~or ~~building~~be ~~materials,~~adjacent to or ~~ACBM,~~near ~~and~~other ~~may~~properties ~~impose~~that ~~fines~~have ~~and~~contained ~~penalties~~or ~~for~~currently contain ~~failure~~storage totanks ~~comply~~for ~~with~~the ~~these~~storage ~~requirements~~of orpetroleum ~~expose~~products usor toother ~~third-party~~hazardous ~~liability~~or (etoxic substances.g. Similarly, ~~liability~~any ~~for~~properties ~~personal~~we own ~~injury~~or ~~associated~~acquire ~~with~~might ~~exposure~~have tobeen ~~asbestos).~~used ~~Such~~in ~~laws~~the ~~require~~past ~~that~~for ~~owners~~commercial or ~~operators~~industrial ofpurposes ~~buildings~~that ~~containing~~involve ~~ACBM~~or ~~(and~~involved ~~employers~~the inuse ~~such~~of ~~buildings)~~petroleum products ~~properly~~or ~~manage~~other ~~and~~hazardous ~~maintain~~or ~~the~~toxic ~~asbestos~~substances, ~~adequately~~or ~~notify~~are adjacent to or ~~train~~near ~~those~~properties ~~who~~that ~~may~~have ~~come~~been ~~into~~or ~~contact~~are ~~with~~used ~~asbestos,~~for ~~and~~similar ~~undertake~~commercial or ~~special~~industrial ~~precautions~~purposes. As a result, ~~including~~such ~~removal~~property or ~~other~~properties ~~abatement,~~may ifhave ~~asbestos~~been ~~would~~or may be ~~disturbed~~impacted ~~during~~by ~~renovation~~contamination orarising ~~demolition~~from the releases of asuch ~~building~~hazardous substances or petroleum products. ~~Any~~If ~~properties~~we deem it appropriate in the future, we ~~own~~may take steps to address identified contamination or ~~acquire~~mitigate ~~may~~risks ~~contain~~associated ~~ACBM~~with ~~and~~such contamination; however, we ~~could~~are unable to ensure that further actions will not be ~~liable~~necessary. ~~for~~As ~~such~~a ~~damages~~result of the foregoing, ~~fines~~we orcould ~~penalties~~potentially incur material liabilities.

InEnvironmental ~~addition,~~laws also govern the ~~properties~~presence, maintenance weand ~~own~~removal orof ~~acquire~~asbestos-containing ~~will~~building bematerials, ~~subject~~or to“ACBM”, ~~various~~and ~~federal,~~may ~~state,~~impose fines and ~~local~~penalties ~~environmental~~for failure ~~and~~to ~~health~~comply ~~and~~with ~~safety~~these requirements, ~~such~~or asexpose ~~state~~us ~~and~~to ~~local~~third-party ~~fire~~liability ~~requirements~~(e.g., ~~Such~~liability ~~environmental~~for ~~and~~personal ~~health~~injury ~~and~~associated with ~~safety~~exposure ~~laws~~to ~~and~~asbestos). ~~regulations~~Such ~~could~~laws ~~subject~~require usthat owners or ~~our~~operators ~~tenants~~of tobuildings ~~liability~~containing ~~resulting~~ACBM ~~from~~(and ~~activities~~employers onin ~~the~~such ~~properties~~buildings) properly ormanage and maintain the ~~failure~~asbestos, toadequately ~~comply~~notify ~~with~~or ~~such~~train ~~requirements.~~those ~~Environmental~~who ~~liabilities~~may ~~could~~come ~~affect~~into acontact ~~tenant’s~~with ~~ability~~asbestos, toand ~~make~~undertake special ~~rental~~precautions, ~~payments~~including toremoval ~~us.~~or Inother ~~addition~~abatement, ~~changes~~if inasbestos ~~laws~~would ~~could~~be ~~increase~~disturbed ~~the~~during ~~potential~~renovation ~~liability~~or ~~for~~demolition ~~noncompliance~~of a building. ~~The~~Any ~~costs~~properties ~~associated~~we ~~with~~own ~~such~~or ~~liability~~acquire ~~could~~may becontain ~~substantial~~ACBM and we could ~~have~~be aliable ~~material~~for ~~adverse~~such ~~effect~~damages, onfines usor penalties.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels have been alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at the properties we own or acquire could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our current properties.-9-

~~REIT~~Table ~~Qualification~~of Contents

WeIn ~~intend~~addition, ~~to elect to be taxed as a REIT for~~ the ~~calendar~~properties ~~year in which~~ we ~~qualify~~own toor acquire bewill ~~taxed as such under the Revenue Code and it is advantageous to the shareholders to do so. The earliest we could qualify would~~ be ~~our taxable year ending on December 31~~, ~~2016.~~subject ~~Our qualification as a REIT will depend upon our ability~~ to ~~meet~~various onfederal, ~~a continuing basis~~state, ~~through~~and ~~actual~~local ~~investment~~environmental and ~~operating~~health ~~results,~~and ~~various~~safety ~~complex~~ requirements ~~under the Code relating to~~, ~~among~~such ~~other~~as ~~things,~~state ~~the~~and local ~~sources~~fire ofrequirements. ~~our~~Such ~~gross~~environmental ~~income,~~and ~~the~~health ~~composition~~ and ~~values~~safety oflaws ~~our~~and ~~assets,~~regulations ~~our~~could ~~distribution~~subject ~~levels~~us ~~and~~or ~~the~~our ~~diversity~~tenants ofto ~~ownership~~liability resulting offrom ~~our~~activities ~~shares.~~on Wethe ~~believe~~properties ~~that~~or wethe ~~have~~failure ~~been~~to ~~organized~~comply ~~in conformity~~ with ~~the~~such requirements. ~~for~~Environmental ~~qualification~~liabilities ~~and~~could ~~taxation as~~ affect a ~~REIT~~tenant’s ~~under~~ability ~~the~~to ~~Code,~~make ~~and~~rental ~~that~~payments ~~our~~to ~~intended~~us. ~~manner~~In ofaddition, ~~operation~~changes ~~will~~in ~~enable~~laws uscould toincrease ~~meet~~ the ~~requirements~~potential ~~for~~liability ~~qualification and taxation as a REIT~~for noncompliance. WeThe ~~intend~~costs toassociated ~~amend~~with ~~our~~such ~~articles~~liability tocould ~~include~~be ~~certain~~substantial ~~restrictions~~and tocould ~~enable~~have usa tomaterial ~~meet~~adverse ~~the~~effect ~~requirements~~on ~~for qualification and taxation as a REIT~~us.

13When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels have been alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at the properties we own or acquire could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our current properties.

~~So long as we qualify as a~~ REIT, we generally will not be subject to U.S. federal income tax on our REIT taxable income we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property. In addition, any TRS we own will be subject to U.S. federal, state and local taxes on its income or property.Qualification

~~Investment~~We ~~Company~~intend ~~Act~~to elect to be taxed as a REIT for the calendar year in which we qualify to be taxed as such under the Revenue Code and it is advantageous to the shareholders to do so. The earliest we could qualify would be our taxable year ending on December 31, 2019. Our qualification as a REIT will depend upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of ~~1940~~our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. We intend to amend our articles to include certain restrictions to enable us to meet the requirements for qualification and taxation as a REIT.

WeSo ~~intend~~long as we qualify as a REIT, we generally will not be subject to ~~conduct~~U.S. federal income tax on our ~~operations~~REIT sotaxable ~~that~~income ~~neither~~we distribute currently to our shareholders. If we ~~nor~~fail to qualify as a REIT in any oftaxable ~~our~~year ~~subsidiaries~~and ~~are~~do ~~required~~not qualify for certain statutory relief provisions, we will be subject to ~~register~~U.S. federal income tax at regular corporate rates and may be precluded from qualifying as ana ~~investment~~REIT ~~company~~for ~~under~~the subsequent four taxable years following the ~~Investment~~year ~~Company~~during ~~Act~~which ofwe ~~1940~~lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property. In addition, any TRS we own will be subject to U.S. federal, state and local taxes on its income or property. We do not currently qualify as a REIT in the current calendar year.

~~Risk~~Investment ~~Management~~Company Act of 1940

~~Our~~We ~~risk~~intend ~~management~~to ~~activities~~conduct ~~are overseen by~~ our ~~board~~operations ofso that ~~directors.~~neither Wewe ~~will~~nor ~~face~~any ~~various forms~~ of ~~risk in~~ our ~~business~~subsidiaries ~~ranging~~are ~~from~~required ~~broad economic, commercial and industrial market and interest rate trends~~ to ~~more~~register ~~specific factors such~~ as ~~credit~~an ~~risk~~investment ~~related~~company tounder ~~our~~the ~~tenants,~~Investment ~~leasing~~Company Act of ~~properties and competition for properties~~1940. See also “Risk Factors.” We believe that the real estate market and credit risk expertise developed by our Chief Executive Officer and Chief Financial Officer will allow us to navigate these risks.

~~Insurance~~Risk Management

WeOur ~~currently~~risk ~~maintain~~management ~~property,~~activities ~~liability,~~are ~~and~~overseen by ~~umbrella~~our ~~coverage~~board ~~under~~of adirectors. ~~blanket~~We ~~policy~~will ~~for~~face ~~each~~various ~~property. We~~forms ~~believe~~of ~~the~~risk ~~policy~~in ~~specifications~~our ~~and~~business ~~insured~~ranging ~~limits~~from ~~covering~~broad ~~our~~economic, ~~properties~~commercial ~~are~~and ~~appropriate~~industrial market and ~~adequate~~interest ~~given~~rate ~~the~~trends ~~relative~~to more specific factors such as credit risk ofrelated ~~loss~~to our tenants, ~~the~~ability ~~cost~~to ofmeet ~~the~~financial obligations ~~coverage~~under our loan agreements, leasing of properties and ~~industry~~competition ~~practice;~~for ~~however,~~properties. We also face risks related to our limited ~~insurance~~number ~~coverage~~of ~~may~~employees ~~not~~and besignificant ~~sufficient~~debt toload, ~~fully~~as ~~cover~~well ~~our~~as ~~losses~~pending litigation. See also “Risk Factors.”

~~Employees~~-10-

WeTable have structured our operations in a manner that minimizes overhead and relies on third parties to supply experience and expertise necessary to identify and exploit potential acquisition opportunities. We will attempt to minimize general and administrative expenses by maintaining adequate levels of overhead and staff while outsourcing operational duties to consultants and independent contractors where appropriate. We currently have five full-time employees, but expect to eventually hire more employees appropriate for the development of our business.Contents

~~Executive Officers~~ Insurance

We ~~Set~~currently ~~forth~~maintain ~~below~~property, ~~are~~liability, and umbrella coverage under a blanket policy for each property. We believe the ~~names,~~policy ~~ages~~specifications and ~~titles~~insured limits covering our properties are appropriate and adequate given the relative risk of loss, the ~~persons~~cost ~~serving~~of asthe coverage and industry practice; however, our ~~executive~~insurance ~~officers.~~coverage may not be sufficient to fully cover our losses.

Name	Age	Position
MG Kaminski	56	Chief Executive Officer
Eun Stowell	44	Chief Financial Officer

Employees

MGWe ~~Kaminski~~have ~~has~~structured ~~served as~~ our ~~Chief~~operations ~~Executive Officer and~~ in a ~~Director~~manner ~~since~~that ~~June~~minimizes 7,overhead ~~2013.~~and ~~Mr.~~relies ~~Kaminski~~on ~~has~~third ~~over~~parties 25to ~~years~~supply of experience ~~in managed, leased,~~ and ~~constructed~~expertise ~~real~~necessary ~~estate. Prior~~ to ~~joining~~identify ~~us,~~and heexploit potential ~~served~~acquisition asopportunities. ~~President~~We ofwill aattempt ~~variety of real estate companies, including Kasa Real Estate, LLC, a real estate property management company, from December 2010~~ to ~~June~~minimize 7,general ~~2013,~~and WPadministrative ~~Construction,~~expenses ~~LLC,~~by amaintaining ~~real~~adequate ~~estate~~levels of ~~construction~~overhead ~~company,~~and ~~from~~staff ~~May~~while ~~2006~~outsourcing tooperational ~~December~~duties ~~2012, Wayzata Properties, LLC, a real estate management company, from December 2003~~ to ~~December~~consultants ~~2011~~ and WPindependent ~~Brokerage,~~contractors ~~LLC,~~where ~~a leasing real estate company, from October 2005 to December 2010~~appropriate. ~~Mr.~~We ~~Kaminski~~currently have ~~also~~seventy ~~has~~five ~~significant~~full-time ~~asset management experience~~employees, ~~serving~~but asexpect ~~President of Wayzata Capital Management, LLC from August 1996~~ to ~~December~~eventually ~~2012.~~hire ~~Mr.~~more ~~Kaminski’s~~employees ~~qualifications~~appropriate tofor ~~serve~~the ondevelopment ~~our board~~ of ~~directors~~our ~~include, among other skills and qualifications, his extensive experience as a manager and in the real estate industry~~business.

14Executive Officers

OnSet ~~May~~forth ~~18,~~below ~~2012,~~are the ~~Hennepin~~names, ~~County~~ages ~~District~~and ~~Court~~titles of ~~appointed~~the ~~Colliers~~persons ~~International~~serving as aour ~~receiver~~executive ~~for the 555,945 sq~~officers. ~~ft. Parkdale office park in St. Louis Park, MN. The property is owned by Parkdale Properties, LLC, for which Mr. Kaminski served as chief manager.~~

On June 28, 2011, a court appointed Cassidy Turley as a receiver for the 67,000 sq. ft. Boatworks building in Wayzata, MN. The property is owned by Bay Holdings, LLC, for which Mr. Kaminski served as chief manager.

Name	Age	Position
MG Kaminski	58	Chief Executive Officer
Keith Gruebele	62	Chief Financial Officer

~~Eun~~MG ~~Stowell~~Kaminski has served as our Chief ~~Financial~~Executive Officer and a Director since June 7, 2013. Mr. Kaminski has over 25 years of experience in managed, leased, and constructed real estate. Prior to joining us, ~~Ms.~~he ~~Stowell~~ served as ~~Chief~~President ~~Financial~~of ~~Officer~~a atvariety ~~Talon~~of ~~Real~~real estate companies, including Kasa Real Estate, LLC, ~~from~~a ~~April~~real 1estate property management company, ~~2013~~from December 2010 to June 7, 2013, ~~and~~WP asConstruction, ~~Chief Compliance Officer~~LLC, ~~Director~~a ofreal ~~Finance~~estate construction ~~and Accounting~~company, ~~and~~from ~~CDO~~May ~~Portfolio~~2006 ~~Manager~~to atDecember ~~Castle~~2012, ~~Peak~~Wayzata ~~Capital Advisers~~Properties, LLC, a ~~private~~real ~~equity~~estate ~~investment~~management company ~~and registered investment adviser~~, from December 2003 ~~2008~~ to ~~April~~December ~~2013.~~2011 ~~Prior~~and toWP ~~her~~Brokerage, ~~work~~LLC, ata ~~Castle~~leasing ~~Peak~~real ~~Capital~~estate ~~Advisers~~company, ~~Ms.~~from ~~Stowell~~October ~~was~~2005 ato ~~portfolio~~December ~~manager~~2010. ~~among~~Mr. ~~other~~Kaminski ~~various~~also has ~~roles~~significant atasset ~~GMAC-Rescap,~~management ~~LLC~~experience, aserving ~~financial~~as ~~services~~President ~~company~~of ~~that~~Wayzata ~~focused~~Capital onManagement, ~~residential~~LLC ~~real~~from ~~estate~~August ~~loans~~1996 ~~and~~to ~~securities~~December 2012. ~~Prior~~Mr. toKaminski’s ~~that,~~qualifications ~~she~~to ~~worked~~serve aton aour ~~multi-strategy~~board ~~private~~of ~~investment~~directors ~~firm~~include, ~~and~~among ~~KPMG~~other ~~LLP.~~skills ~~Ms.~~and ~~Stowell~~qualifications, ~~holds~~his extensive anexperience ~~inactive~~as ~~CPA~~a ~~license~~manager ~~from~~and in the ~~state~~real ofestate ~~Minnesota~~industry.

15Keith Gruebele has served as our Chief Financial Officer since November 1, 2016. Prior to joining us, Mr. Gruebele served as the Director of Finance at Mid America Festivals from April 2016 through October 2016. He served as an independent consultant from September 2015 through March 2016. From January 2010 through August 2015 he served as Finance, Operations, Real Estate and Special Projects Leader at GLC Enterprises, Inc. Mr. Gruebele holds an inactive CPA license from the state of Minnesota. In August 2018, Mr. Gruebele stepped down from active management of the Company due to health reasons.

~~Item 1A.~~-11-

~~Risk~~Table ~~Factors~~of Contents

~~Set~~Item forth below and elsewhere in this Annual Report on Form 10-K, and in other documents we file with the Securities and Exchange Commission, are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K and in other written and oral communications from time to time1A. ~~Our~~ ~~business~~Risk could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our financial statements and related notes.Factors

~~RISKS~~Set ~~RELATED~~forth TObelow ~~OUR~~and ~~BUSINESS~~elsewhere ~~AND~~in ~~FINANCIAL~~this ~~CONDITION~~Annual Report on Form 10-K, and in other documents we file with the Securities and Exchange Commission, are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K and in other written and oral communications from time to time. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our financial statements and related notes.

WeRISKS ~~are~~RELATED aTO ~~company~~OUR ~~with~~BUSINESS ~~limited~~AND ~~operating~~FINANCIAL ~~history for you to evaluate our business.~~CONDITION

~~Our~~We ~~predecessor~~are ~~was~~a ~~incorporated in the State of Utah on November 1, 2007, for the sole purpose of becoming the holding~~ company ~~of Guidebook, which focuses on providing “do-it-yourself” instructional manuals for residential electrical, plumbing, and remodeling applications. We divested Guidebook in connection~~ with the transactions forming our current business. We formed our Operating Partnership in June 2013 and currently are engaged in the business of investing in office, industrial and retail properties located in our target markets. We have a limited operating history for you to consider in evaluating our business and prospects. In addition, our business plan involves significant expansion of our real estate holdings that have not been agreed upon as of the date of this filing. As a result, it is difficult for potential investors to evaluate our business ~~and prospects~~. Our operations are subject to all of the risks, difficulties, complications and delays frequently encountered in connection with the formation of any new business, as well as those risks that are specific to the real estate industry.

Our ~~business~~predecessor ~~plan~~was ~~requires~~incorporated ~~additional~~in ~~liquidity~~the State ~~and~~of ~~capital~~Utah ~~resources~~on ~~that~~November ~~might~~1, ~~not~~2007, befor ~~available~~the sole purpose of becoming the holding company of Guidebook, which focuses on ~~terms~~providing “do-it-yourself” ~~that~~instructional ~~are~~manuals ~~favorable~~for toresidential uselectrical, orplumbing, atand ~~all~~remodeling applications. We divested Guidebook in connection with the transactions forming our current business. We formed our Operating Partnership in June 2013 and currently are engaged in the business of investing in office, ~~which~~industrial ~~raises~~and ~~substantial~~retail ~~doubt~~properties ~~about~~located in our ~~ability~~target markets. We have a limited operating history for you to ~~continue~~consider in evaluating our business and prospects. In addition, our business plan involves significant expansion of our real estate holdings that have not been agreed upon as of the date of this filing. As a ~~going~~result, ~~concern~~it is ordifficult ~~restricts~~for potential investors to evaluate our ~~ability~~business and prospects. Our operations are subject to ~~grow~~all of the risks, difficulties, complications and ~~adversely~~delays ~~affect~~frequently ~~our~~encountered ~~results~~in connection with the formation of ~~operations~~any new business, as well as those risks that are specific to the real estate industry.

WeThe ~~currently~~report do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have very limited cash flow from current operations. As of December 31, 2015, we had unrestricted cash of $340,385 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and/or increased cash flow from future operations to fund our ~~ongoing~~independent ~~business.~~registered ~~There~~public isaccounting firm noexpresses ~~guarantee~~substantial ~~that~~doubt weabout ~~will be able to raise any required additional capital or generate sufficient cash flow from~~ our ~~current~~ability ~~and future operations~~ to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

~~Any~~Our ~~additional~~independent ~~capital~~registered ~~raised~~public ~~through~~accounting firm ~~the~~has ~~sale~~indicated ofin ~~equity~~its oropinion ~~the~~attached ~~issuance~~to ofits ~~equity~~audit inreport ~~connection~~for ~~with~~the ~~property~~year ~~acquisitions~~ended ~~may~~December ~~dilute~~31, ~~the~~2016 ~~ownership~~that ~~percentage~~there ofis ~~our~~substantial ~~shareholders.~~doubt about ~~This~~our ~~could~~ability ~~also~~to ~~result~~continue inas a ~~decrease~~going inconcern ~~the~~due ~~fair~~to ~~market value of~~ our ~~equity~~expectation ~~securities~~that ~~because~~projected ~~our~~funds ~~assets~~from ~~would~~operations, betogether ~~owned~~with bycurrent cash aon ~~larger~~hand, ~~pool~~will ofbe ~~outstanding~~insufficient ~~equity.~~to ~~The~~meet ~~terms~~working ~~of securities we issue in future~~ capital ~~transactions~~requirements, ~~may be more favorable~~ to ~~our~~repay ~~new~~debt ~~investors,~~at maturity and ~~may~~other ~~include~~financing ~~preferences,~~costs ~~superior voting rights~~ and to ~~the~~fund ~~issuance~~required ofcapital ~~warrants~~expenditures orand ~~other~~leasing ~~derivative~~costs. ~~securities,~~Our ~~and~~financial ~~issuances~~statements ofdo ~~incentive~~not ~~awards~~include ~~under~~any ~~equity~~adjustment ~~employee~~that ~~incentive~~might ~~plans,~~result from ~~which~~the ~~may~~outcome ~~have~~of athis ~~further dilutive effect~~uncertainty. ~~Debt~~Any ~~financing,~~management ifplan ~~available,~~to ~~may~~address ~~involve~~our ~~restrictive~~financial ~~covenants~~condition ormay ~~additional~~be ~~security~~ineffective, ~~interests~~and inwe ~~our~~cannot provide ~~assets~~any ~~and~~assurance ~~would~~that ~~increase~~we ~~our~~will ~~expenses~~be ~~due~~able to ~~interest~~continue ~~payment~~as ~~requirements~~a going concern.

Our ~~ability~~business toplan ~~obtain~~requires ~~needed~~additional ~~financing~~liquidity ~~may~~and capital beresources ~~impaired~~that bymight ~~such~~not ~~factors~~be asavailable ~~the~~on ~~capital~~terms ~~markets~~that ~~(both~~are ~~generally~~favorable ~~and~~to ~~in the real estate industry in particular)~~us, ~~our~~or ~~status~~at ~~as a new enterprise without a significant demonstrated operating history~~all, ~~the~~which raises substantial doubt about our ability to continue as a going concern, ~~and/~~or ~~the~~restricts ~~loss~~our ofability ~~key~~to ~~management~~grow and adversely affect our results of operations.

16We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have very limited cash flow from current operations. As of December 31, 2016, we had unrestricted cash of $108,418 and current liabilities, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and/or increased cash flow from future operations to fund our ongoing business. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-~~cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which may adversely impact our financial condition and results of operations.~~12-

InTable ~~their~~of ~~report dated April 6, 2016, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern.~~Contents

WeAny ~~own~~additional acapital ~~49%~~raised ~~interest~~through the sale of equity or the issuance of equity in ~~one~~connection with property acquisitions may dilute the ownership percentage of our shareholders. ~~real~~This ~~estate~~could ~~investments~~also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to our new investors, and ~~therefore~~may doinclude ~~not~~preferences, ~~exercise~~superior voting ~~control~~rights ~~over~~and the ~~property~~issuance of warrants or other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect. Debt financing, if available, may involve restrictive covenants or additional security interests in our assets and would increase our expenses due to interest payment requirements.

Our ~~Operating~~ability ~~Partnership~~to ~~currently~~obtain ~~owns~~needed afinancing may ~~49%~~be ~~interest~~impaired inby ansuch ~~entity~~factors ~~that~~as ~~owns~~the anhealth ~~industrial~~of ~~complex~~and ~~located~~access into ~~the~~capital ~~Minneapolis-St.~~markets ~~Paul~~(both ~~metropolitan~~generally ~~area.~~and Anin ~~affiliate~~the ofreal MGestate ~~Kaminski~~industry in particular), our ~~Chief~~status ~~Executive~~as ~~Officer,~~a ~~owns~~new ~~the~~enterprise ~~other~~without ~~51%~~a ~~interest~~significant indemonstrated ~~the~~operating ~~entity.~~history, ~~Talon~~the ~~RE,~~substantial adoubt ~~wholly~~about our ~~owned~~ability ~~subsidiary~~to ofcontinue ~~our~~as ~~Operating~~a ~~Partnership~~going concern, ~~entered~~and/or ~~into~~the aloss ~~contribution~~of ~~agreement~~key ~~with Mr~~management. ~~Kaminski~~We tomay ~~acquire~~incur ~~his~~substantial ~~remaining~~costs ~~interest~~ in ~~the~~pursuing ~~entity~~future capital financing, ~~subject~~including toinvestment ~~receiving~~banking ~~consent~~fees, tolegal ~~the~~fees, ~~transfer~~accounting ~~from~~fees, ~~the~~securities ~~entity’s~~law ~~lender~~compliance fees, ~~but~~printing ~~there~~and distribution ~~can~~expenses beand noother ~~assurance~~costs. ~~that~~We ~~the~~may ~~lender~~also ~~will~~be ~~consent~~required to ~~the~~recognize ~~transfer~~non-cash orexpenses ~~that~~in connection with certain securities we ~~will~~may ~~ever~~issue, ~~acquire~~such aas ~~controlling~~convertible ~~interest~~notes inand ~~the~~warrants, ~~entity~~which ~~that~~may ~~owns~~adversely ~~the~~impact ~~complex~~our financial condition and results of operations.

~~Our~~We ~~current~~own ~~non-controlling~~real ~~interest~~estate inthat ~~the~~is ~~industrial complex and any future co-investments we might make with third parties through partnerships, joint ventures or other entities are~~ subject to afinancial ~~variety~~and ~~of risks. For example~~other covenants, weas ~~might~~well ~~not~~as ~~be in a position to exercise sole decision-making authority regarding the property subject to a co-investment~~liens. ~~Partners~~We orare ~~co-venturers~~not incompliance ~~a co-investment also might become bankrupt or fail to satisfy their obligations~~ with ~~respect~~all to a property. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives, and they may have competing interests in our markets that could create conflict of ~~interest~~those ~~issues. Such investments may also have the potential risk of impasses on decisions~~covenants, ~~such~~which ~~as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. In addition, prior consent of any joint venture partners~~ may beconstitute ~~required~~an ~~for~~event ~~a sale or transfer to a third party~~ of ~~our~~default ~~interests~~under certain ~~in the joint venture, which would restrict our ability to dispose~~ of our ~~interest~~loan inagreements ~~the joint venture. If we become a limited partner or non-managing member in any partnership or limited liability company~~ and ~~such~~cause ~~entity~~acceleration ~~takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose~~ of ~~our~~certain ~~interest~~indebtedness ~~in such entity. Disputes between us~~ and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers or directors from focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting any properties owned by the ~~partnership~~initiation orof ~~joint~~foreclosure ~~venture~~action ~~to additional risk. In addition, we may in~~ against certain ~~circumstances be liable for the actions~~ of our ~~third-party partners or co-venturers~~properties. ~~Any such joint ventures may be subject to debt and the refinancing of such debt may require equity capital calls.~~

~~Our~~All ~~lack~~ of ~~diversification~~the ~~increases~~properties we own are subject to loan agreements requiring, among other covenants, compliance with certain financial and non-financial covenants. In the ~~risk~~event we are unable to comply with the requirements of anour ~~investment~~borrowings, we may be subject to default, which could cause a lender to accelerate our indebtedness or to initiate a foreclosure action. Judgments against the borrower in excess of $100,000 or against the guarantors of our ~~company~~loans in excess of $250,000 that remain unpaid after 30 days constitute an event of default under our 10301 Bren Road loan agreements and judgments against the borrower or the guarantors of our ~~financial~~loans ~~condition~~in excess of $250,000 that remain unpaid after 60 days constitute and ~~results~~event of ~~operations~~default ~~may~~under ~~deteriorate~~our if180 weE ~~fail~~5th toStreet ~~diversify~~loan.

WeOn ~~currently~~February ~~own~~27, an2017, ~~interest~~a injudgment ~~four commercial properties located~~ in the amount ~~Minneapolis-St.~~of ~~Paul~~$719,365 ~~area.~~was ~~Although~~ordered weagainst ~~intend~~Talon toBren ~~continue~~Road, toLLC ~~acquire~~and ~~additional~~Talon ~~properties~~O.P. ~~for~~L.P. ~~our~~On ~~portfolio~~March 27, ~~our~~2017, ~~ability~~Talon toBren ~~diversify~~Road, ~~our~~LLC ~~portfolio~~received a ~~will~~notice ~~depend~~of ona ~~our~~default ~~access~~under tothe ~~additional~~terms ~~capital~~of ~~and~~our ~~financing~~second ~~sources~~mortgage ~~and~~agreement, the ~~availability~~outstanding balance of ~~suitable~~which ~~acquisition~~was ~~targets~~$2.0 Wemillion ~~also~~as ~~intend to finance some acquisitions with shares~~ of December ~~our~~31, ~~company’s~~2016. ~~common~~On ~~stock~~April or13, ~~the~~2017, ~~Operating~~Talon ~~Partnership’s~~Bren ~~limited~~Road, ~~partnership~~LLC, ~~units~~Talon soO.P. ~~our~~and ~~ability~~Talon toReal ~~diversify~~Estate ~~may~~Holding ~~also~~Corp. ~~depend~~received ona ~~the~~notice ~~willingness~~and acceleration of ~~real~~demand ~~estate~~for ~~owners~~payment toof ~~exchange~~amounts ~~their~~outstanding ~~real~~under ~~estate~~our ~~holdings~~first ~~for~~mortgage ~~such~~loan ~~securities~~agreement, ~~which~~the webalance ~~anticipate~~of ~~will~~which ~~have~~was ~~limited liquidity~~approximately $10.7 ~~Until~~million ~~such time~~ as weof ~~are~~December ~~able~~31, to2016. ~~diversify~~On ~~our~~June ~~property holdings~~23, if2017 atthe ~~all,~~amounts ~~our~~outstanding ~~results of operations will depend~~ on ~~economic conditions in~~ the ~~Minneapolis-St.~~first ~~Paul area~~ and ~~could~~second ~~fluctuate~~mortgage ~~significantly~~were ~~depending~~refinanced with ona ~~local~~new ~~economic~~lender ~~factors~~and ~~that~~the ~~are~~judgment ~~outside of our control. In addition, natural disasters~~ in ~~this~~the ~~area,~~amount ~~such~~of ~~as tornados~~$719,365 ~~could~~was ~~significantly~~satisfied ~~damage~~out ~~our~~of ~~only~~the ~~current~~proceeds ~~property and materially and adversely affect our financial condition, results~~ of ~~operations~~the ~~and prospects~~refinancing.

17On April 7, 2017, a judgment in the amount of $897,695 was ordered against Talon Real Estate Holding Company and Talon O.P. L.P, jointly and severally. On May 31, 2017, the Court granted a Charging Order against the Company and Talon O.P.L.P where the Company and Talon O.P.L.P are required to pay all profits and distributions to the plaintiff until the full amount of the judgment is paid and satisfied.

AsSubsequent ofto ~~December~~the ~~31,~~judgment ~~2015~~and charging order, ~~there was approximately $49.5 million of indebtedness secured by buildings~~ in ~~which~~April ~~we have an interest~~2018, ~~which~~the ~~could~~judgment ~~expose~~was usfully tosatisfied ~~default,~~by ~~prevent~~ the ~~disposition~~Company, ofgranting ~~any~~a ofsecond ~~the~~mortgage ~~properties or result~~ in afavor ~~significant loss upon disposition~~ of ~~any of~~ the ~~properties~~judgment creditor.

The appraised value or purchase price of acquired properties are not necessarily equal to the fair market value or the consideration we would receive if we disposed of the properties in arm’s length transactions. If the fair market value of the property is less than the amount of outstanding debt secured by the property, the entity that owns the property might not be able to dispose of it or, if it does dispose of the property, it could be at a substantial loss that would adversely affect our results of operations and financial condition. In addition, payments of principal and interest on the indebtedness related to the property may require us to contribute cash resources to operate the property, and indebtedness on any future properties we may acquire or seek to acquire in the future could leave us with insufficient cash resources to operate our business or to pay dividends to our shareholders.-13-

WeTable ~~own real estate that is subject to financial and other covenants. We may not be in compliance with those covenants, which may cause acceleration~~ of ~~certain indebtedness.~~Contents

WeIn ~~own~~June ~~real estate that is subject to loan agreements requiring~~2017, ~~among other covenants, compliance with certain financial covenants. In particular, Talon~~ First Trust, ~~LLC,~~was ansold ~~entity~~100% for ~~through which our~~ Operating ~~Partnership~~Units ~~acquired~~of ~~the~~First ~~property~~Capital ~~located~~Operating ~~at 180 E. Fifth Street St. Paul~~Partnership, ~~MN on July 2~~LP, ~~2014, is party to~~ a ~~loan~~subsidiary ~~agreement secured by such property, and that loan requires Talon First Trust, together with certain guarantors, to satisfy certain minimum net worth and cash and marketable securities covenants. As~~ of ~~December 31~~FCREIT, ~~2015, Talon First Trust was not in compliance with those covenants~~Inc. ~~Subsequent to that date~~, wea ~~added~~Maryland ~~our~~corporation ~~Chief Executive Officer~~ operating as a ~~guarantor~~nontraded ~~on that loan in order to improve Talon First Trust’s ability to satisfy these covenants~~REIT. If we do not satisfy the financial or other covenants, our lender may, at its option, accelerate its loan to us, which could have a material adverse effect upon our business, results of operations and financial condition.

WeOn ~~own~~December ~~real~~15, ~~estate~~2018, ~~that~~the isCompany ~~subject~~entered into toa ~~liens~~termination ~~that~~agreement ~~may~~with bethe ~~enforced~~landlord. ~~and~~In ~~may~~exchange ~~cause~~for ~~acceleration~~vacating ofthe ~~certain~~premises, ~~indebtedness~~the accrued rent was forgiven.

WeOn ~~own~~December ~~real estate that is subject to liens~~31, ~~including mechanics liens for work completed on the properties. Specifically~~2018, ~~mechanics liens have been placed on~~ the ~~property~~Company ~~at 180 E. Fifth Street related to the work completed to prepare the tenant space for a significant lease entered into on April~~ issued 9, 2015. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements. We are in the process of attempting to secure financing that will satisfy these liens251,810 ~~but~~shares ~~there is no guarantee that the financing will be completed or that sufficient cash will be available from current operations~~ to ~~satisfy the liens. If we do not pay amounts required to be paid to the lienholders~~Directors, ~~the~~employees ~~holders of those liens may enforce those liens which could have a material adverse effect upon our business, results of operations~~ and ~~financial condition~~vendors. In ~~addition,~~The ~~the~~shares ~~senior~~have ~~lender~~yet ~~for that property may, at its option, accelerate its loan~~ to ~~us,~~be ~~which could have a material adverse effect upon our business, results of operations and financial condition~~delivered.

We ~~may~~could beface difficulties in ~~default~~refinancing ~~under~~loans ainvolving balloon ~~significant~~payment ~~lease~~obligations.

OnMost ~~April~~of 9,our ~~2015,~~mortgage weloans ~~entered~~require ~~into~~us to make a ~~significant~~lump-sum ~~lease~~or ~~arrangement~~“balloon” ~~with~~payment at maturity. Our ability to make a ~~new~~balloon ~~tenant. As~~payment ~~part~~at ofmaturity ~~the~~could ~~lease~~be ~~agreement,~~uncertain and wemay ~~incurred~~depend anupon ~~obligation~~our ~~for~~ability ~~lease~~to ~~incentives~~obtain upadditional financing, to ~~approximately~~refinance ~~$8.2~~the ~~million. As~~debt ofor ~~December~~our ~~31,~~ability ~~2015,~~to wesell ~~had~~the ~~recorded~~particular ~~$216,278~~property. On ~~and~~April $78,~~760~~ 2017,~~995~~ towe ~~building~~had ~~improvements~~a ~~and~~balloon ~~tenant~~payment ~~improvement~~due ~~allowance~~in ~~payable,~~the ~~respectively,~~amount ~~related~~of to$4.3 ~~this~~million ~~commitment~~dollars. On ~~April~~As 1,of ~~2016~~the date of this report, the ~~tenant~~payment is ~~has~~past ~~provided~~due ~~notice~~and ~~asserting~~we ahave ~~right~~been unable to ~~terminate~~refinance ~~the~~it. ~~lease~~If ~~based~~we oncontinue ~~certain~~to ~~alleged~~be ~~defaults~~in ~~related~~default or are unable to ~~the~~obtain ~~completion~~a ~~and~~waiver ~~delivery~~from ofthe lender, the ~~building~~lender ~~and~~may ~~tenant~~foreclose ~~improvements~~on ~~under~~ the ~~lease. We~~secured ~~have~~property ~~responded~~or ~~and~~accelerate ~~are~~any ~~working~~amounts ~~with~~due. ~~the~~We ~~tenant~~may be required to ~~resolve~~sell the ~~dispute~~mortgaged property ~~and~~at ~~intend~~a totime ~~defend~~which ~~our~~may ~~position~~not ~~that~~permit ~~the~~realization ~~tenant~~of ~~does~~the ~~not~~maximum ~~have~~return ~~any~~on ~~rights~~such toproperty. ~~terminate~~The ~~the~~effect ~~lease. However,~~of wea ~~are~~refinancing ~~unsure~~or ~~whether~~sale could weaffect ~~will~~the berate ~~able~~of return to ~~work~~shareholders ~~out~~and anthe ~~acceptable~~projected ~~arrangement~~time ~~with~~of ~~the~~disposition ~~tenant~~of orour ~~prevail~~assets. inIf ~~this~~we ~~dispute. Termination~~are ofable to refinance the ~~lease~~debt, ~~could~~we ~~have~~may anot ~~material~~be ~~adverse~~able ~~effect~~to ~~upon~~obtain ~~our~~terms ~~business,~~as ~~results~~favorable ofas ~~operations~~the ~~and~~original ~~financial~~loan. ~~condition,~~The aseffect ~~well~~of asa ~~hindering~~refinancing ~~our~~or ~~ability~~sale could affect the rate of return to ~~sell~~shareholders and the ~~building~~projected ~~either~~time atof adisposition ~~profit~~of orour ~~at all~~assets.

18We are subject to litigation proceedings that could harm our business if an unfavorable ruling were to occur.

WeFrom ~~are~~time ~~dependent~~to ontime, ~~key~~we ~~personnel~~may become involved in litigation and ~~need~~other tolegal ~~hire~~proceedings ~~additional~~relating ~~qualified~~to ~~personnel~~claims ~~for~~arising from our operations in the normal course of business. As described in, but not limited to, ~~succeed~~Part I, Item 3, "Legal Proceedings" of this Form 10-K, we are currently subject to certain legal proceedings. Litigation is subject to inherent uncertainties, and unfavorable rulings may occur. We cannot assure you that these or other litigation or legal proceedings will not materially affect our ability to conduct our business in the manner that we expect or otherwise adversely affect us should an unfavorable ruling occur.

Our ~~performance~~lack ~~is substantially dependent on the performance~~ of ~~our~~diversification ~~senior~~increases ~~management, including MG Kaminski, our Chief Executive Officer, and Eun Stowell, our Chief Financial Officer. The loss of~~ the ~~services~~risk of ~~any~~an investment ofin our ~~executive officers could have a material adverse effect on our business~~company, ~~results of operations~~ and our financial condition. ~~Our future success also depends on our continuing ability to attract~~ and ~~retain~~results ~~highly~~of ~~qualified~~operations ~~managerial~~may ~~and~~deteriorate ~~other~~if ~~personnel. Competition for such personnel is intense and~~ we ~~may~~fail ~~not be able~~ to ~~retain our key managerial and other employees or may not be able to attract and retain additional highly qualified managerial and other personnel in the future~~diversify. ~~The inability to attract and retain necessary managerial and other personnel could have a material adverse effect upon our business, results of operations and financial condition.~~

~~Properties~~We ~~formerly~~currently ~~managed~~own byan interest in three commercial properties located in the Minneapolis-St. Paul area. In addition, we own 7 hotels in Texas and Oklahoma and development land in Antiqua. Although we intend to continue to acquire additional properties for our ~~Chief~~portfolio, ~~Executive~~our ~~Officer~~ability to diversify our portfolio will depend on our access to additional capital and financing sources and the availability of suitable acquisition targets. We also intend to finance some acquisitions with shares of our company’s common stock or the Operating Partnership’s limited partnership units so our ability to diversify may also depend on the willingness of real estate owners to exchange their real estate holdings for such securities, which we anticipate will have ~~been~~limited liquidity. ~~placed~~Until ~~into~~such ~~receivership~~time as we are able to diversify our property holdings, if at all, our results of operations will depend on economic conditions in the Minneapolis-St. Paul area and could fluctuate significantly depending on local economic factors that are outside of our control. In addition, natural disasters in this area, such as tornadoes, could significantly damage our current property and materially and adversely affect our financial condition, results of operations and prospects.

MG Kaminski, our Chief Executive Officer, has over 26 years of experience in the real estate business. In those years, he has acquired, financed, managed, leased and constructed properties. With the downturn in the U.S. economy and specifically the real estate markets beginning in 2008, he experienced significant setbacks. In 2009, properties owned by Mr. Kaminski and his affiliates experienced rapid vacancies and in order to compete for remaining leases, rents were dropped dramatically, almost 50% in some cases, to retain and attract tenants. During that depressed real estate market of high vacancies and greatly reduced rents, some of these properties could not cover their debt payments and could not be refinanced. Those properties were placed into receivership in 2011 and 2012. There is no assurance that properties we acquire or manage will produce adequate cash flow and will not be placed in receivership.-14-

WeTable ~~may~~of ~~not be able to operate as a REIT and our management team has no REIT experience.~~Contents

~~Our~~As ~~board~~ of ~~directors~~December ~~and~~31, ~~executive~~2016, ~~officers~~there ~~have~~was noapproximately ~~prior experience operating a REIT~~$49.1 million ~~There is a risk that the past experience~~ of ~~our~~indebtedness ~~management~~secured ~~team~~by ~~will~~buildings ~~not~~in bewhich ~~sufficient~~we tohave ~~operate~~an ~~our~~interest, ~~company~~which ascould aexpose ~~REIT.~~us ~~We may not qualify~~ to ~~elect~~default, ~~REIT~~prevent ~~status for~~ the ~~taxable~~disposition of ~~year~~any ~~ending~~of ~~December~~the ~~31,~~properties ~~2016,~~ or atresult ~~all.~~in ~~Our failure to qualify as~~ a ~~REIT~~significant ~~may~~loss ~~have~~upon andisposition ~~adverse effect on our tax position, financial condition, results~~ of ~~operations,~~any ~~cash flow and trading price~~ of ~~our~~the ~~common stock~~properties.

~~Our~~The ~~management~~appraised ~~team~~value ~~has~~or ~~never~~purchase ~~run~~price of acquired properties are not necessarily equal to the fair market value or the consideration we would receive if we disposed of the properties in arm’s length transactions. If the fair market value of the property is less than the amount of outstanding debt secured by the property, the entity that owns the property might not be able to dispose of it or, if it does dispose of the property, it could be at a ~~public~~substantial ~~company~~loss that would adversely affect our results of operations and financial condition. In addition, payments of principal and interest on the indebtedness related to the property may require us to contribute cash resources to operate the property, and indebtedness on any future properties we may acquire or seek to acquire in the future could leave us with insufficient cash resources to operate our business or to pay dividends to our shareholders.

~~Our~~We ~~executive~~are ~~officers~~dependent ~~have~~on nokey ~~prior~~personnel ~~experience operating a publicly-traded company. There is a risk that the past experience of our management team will not be sufficient to timely meet disclosure requirements of the Securities~~ and ~~Exchange~~need ~~Commission (the “SEC”) or otherwise comply with securities laws applicable~~ to ~~publicly-traded~~hire additional ~~companies.~~qualified ~~Our~~personnel ~~failure~~for ~~to operate as a public company would have an adverse effect on~~ our ~~financial~~business ~~condition,~~to ~~results of operations, cash flow and trading price of our common stock~~succeed.

IfOur weperformance ~~fail~~is tosubstantially ~~maintain~~dependent on ~~proper~~the ~~and~~performance ~~effective~~of ~~internal~~our ~~controls~~senior management, including MG Kaminski, our Chief Executive Officer. The loss of the services of any of our executive officers could have a material adverse effect on our business, results of operations and our financial condition. Our future success also depends on our continuing ability to ~~produce~~attract ~~accurate~~and retain highly qualified managerial and ~~timely~~other ~~financial~~personnel. Competition ~~statements~~for ~~could~~such personnel is intense and we may not be ~~impaired,~~able to retain our key managerial and ~~investors’~~other ~~views~~employees ofor usmay ~~could~~not be able ~~harmed~~to attract and retain additional highly qualified managerial and other personnel in the future. The inability to attract and retain necessary managerial and other personnel could have a material adverse effect upon our business, results of operations and financial condition.

~~Our~~We company relies on limited accounting personnel to execute our accounting processes and limited other supervisory resources with which to address our internal control over financial reporting. Our ability to prepare financial statements in accordance with generally accepted accounting principles may ~~be adversely impacted if we do~~ not ~~establish~~be ~~and~~able ~~maintain effective internal controls. Failure~~ to ~~implement~~operate ~~required,~~as ora ~~new~~REIT orand ~~improved controls, or the difficulties encountered in the implementation of such controls, could harm~~ our ~~results~~management team ofhas ~~operations,~~no ~~cause~~REIT ~~us to fail to meet our reporting obligations or lead to a loss of investor confidence~~experience.

19Our board of directors and executive officers have no prior experience operating a REIT. There is a risk that the past experience of our management team will not be sufficient to operate our company as a REIT. We may not qualify to elect REIT status for the current calendar, or at all. Our failure to qualify as a REIT may have an adverse effect on our tax position, financial condition, results of operations, cash flow and trading price of our common stock.

Our ~~insurance~~management ~~may~~team behas ~~inadequate~~never torun ~~cover~~a ~~liabilities~~public ~~we may incur~~company.

Our ~~ownership~~executive ofofficers ~~real~~have ~~property~~no ~~may~~prior experience ~~result~~operating ina uspublicly-traded ~~becoming subject to liability for pollution, property damage, personal injury, death or other hazards~~company. ~~Although~~There weis ~~expect~~a torisk ~~obtain~~that ~~insurance~~the inpast ~~accordance~~experience ~~with~~of ~~industry~~our ~~standards~~management toteam ~~address~~will ~~such risks, such insurance has limitations on liability that may~~ not be sufficient to ~~cover~~timely ~~the~~meet ~~full~~disclosure ~~extent~~requirements of ~~such~~the ~~liabilities.~~Securities Inand ~~addition,~~Exchange ~~such~~Commission ~~risks~~(the ~~may~~“SEC”) ~~not, in all circumstances, be insurable~~ or, inotherwise ~~certain~~comply ~~circumstances,~~with securities welaws ~~may~~applicable ~~choose not~~ to ~~obtain~~publicly-traded ~~insurance to protect against specific risks due to the high premiums associated with such insurance or for other reasons~~companies. ~~The~~Our ~~payment~~failure ~~of such uninsured liabilities would reduce the funds available~~ to ~~us.~~operate Ifas ~~we suffer~~ a ~~significant~~public ~~event~~company orwould ~~occurrence~~have ~~that~~an isadverse ~~not~~effect on ~~fully~~our ~~insured~~financial condition, orresults ~~if the insurer~~ of ~~such event is not solvent~~operations, wecash ~~could~~flow beand ~~required~~trading toprice ~~divert~~of ~~funds from capital investment or other uses towards covering~~ our ~~liability~~common ~~for such events, and we may not be able to continue to obtain insurance on commercially reasonable terms~~stock.

WeIf ~~rely~~our onremedial ~~revenues~~measures ~~derived~~are ~~from~~insufficient ~~key~~to ~~tenants~~address material weaknesses and we are unable to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or prevent fraud.

WeOur management ~~derive~~is ~~significant~~responsible ~~revenues~~for ~~from~~establishing ~~certain~~and ~~key~~maintaining ~~tenants~~adequate internal control over financial reporting. WeIn ~~could~~connection bewith our ~~adversely~~management’s ~~affected~~assessment inof the ~~event~~effectiveness of ~~the~~our ~~bankruptcy~~internal orcontrol ~~insolvency~~over financial reporting as of December 31, or2016, we aconcluded ~~downturn~~there were two material weaknesses. Our management identified material weaknesses in ~~the~~internal ~~business~~control ~~of,~~over ~~any~~financial ofreporting relating to our ~~key~~internal ~~tenants~~control environment and our period end financial reporting. In addition, orwe identified multiple significant deficiencies in ~~the~~our ~~event~~internal ~~that~~control ~~any~~over ~~such~~financial ~~tenant~~reporting. ~~does~~Under standards ~~not~~established ~~renew~~by ~~its~~the ~~leases~~Public asCompany ~~they~~Accounting ~~expire~~Oversight orBoard, ~~renews~~a ~~such~~material ~~leases~~weakness atis ~~lower~~a ~~rental~~deficiency, ~~rates.~~or ~~See~~combination ~~"Item~~of deficiencies, 1in –internal ~~Our~~control ~~Current~~over ~~Property~~financial ~~Interests"~~reporting ~~for~~such ~~quantified~~that ~~information~~there ~~with~~is ~~respect~~a toreasonable ~~the~~possibility ~~percentage~~that a material misstatement of our ~~minimum~~annual ~~rents~~or ~~received~~interim ~~from~~financial ~~major~~statements ~~tenants~~will not be prevented, detected or corrected on a timely basis.

~~RISKS RELATED TO OUR INDUSTRY~~-15-

~~Our~~Table ~~ownership~~ of ~~commercial real estate involves a number of risks, the effects of which could adversely affect our business.~~Contents

~~General~~Although ~~economic~~management ~~and~~has ~~market~~begun ~~risks.~~taking Inand ~~periods~~intends ~~during,~~to orcontinue to ~~following,~~take a ~~general~~number ~~economic~~of ~~decline~~steps orto ~~recessionary~~remediate ~~climate,~~the ~~our~~underlying ~~assets~~causes ~~may~~of ~~not~~these ~~generate~~material ~~sufficient~~weaknesses ~~cash~~(see to“Item ~~pay~~9A ~~expenses,~~Controls ~~service debt or cover maintenance,~~ and, asProcedures – aManagement’s ~~result,~~Annual ~~our~~Report ~~results~~on ofInternal ~~operations,~~Control ~~cash~~Over ~~flows~~Financial Reporting” and ~~ability~~“- toManagement ~~pay dividends (if any~~Remediation Plan”), ~~may~~we becannot ~~adversely~~assure ~~affected.~~that ~~Several~~this ~~factors~~remediation ~~may~~will ~~adversely~~occur ~~affect~~on ~~the~~a ~~economic~~timely ~~performance~~basis, ~~and~~or ~~value~~that ofthe ~~our~~efforts ~~properties.~~to ~~These~~remediate ~~factors~~the ~~include,~~material weakness ~~among~~will ~~other~~be ~~things:~~effective.

·Moreover, if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, then there exists a risk that our consolidated financial statements may contain material misstatements that are unknown to us at that time, and such misstatements could require us to restate our financial results. Our management or our independent registered public accounting firm may identify other material weaknesses in our internal control over financial reporting in the future. The existence of a material weakness in our internal control over financial reporting may result in current and potential stockholders and lenders losing confidence in our financial reporting, which could negatively impact the market price of our common stock or willingness of lenders to extend credit to our Company.

~~changes~~In addition, the existence of material weaknesses in our internal control over financial reporting may affect our ability to timely file periodic reports under the ~~national,~~Exchange ~~regional~~Act and may ~~local~~consequently ~~economic~~result ~~climate;~~in the SEC revoking the registration of our common stock or the delisting of our common stock. Any of these events could have a material adverse effect on the market price of our common stock or on our business, financial condition and results of operations.

·Our insurance may be inadequate to cover liabilities we may incur.

~~local~~Our ownership of real ~~estate~~property ~~conditions~~may result in us becoming subject to liability for pollution, property damage, personal injury, death or other hazards. Although we expect to obtain insurance in accordance with industry standards to address such asrisks, ansuch ~~oversupply~~insurance has limitations on liability that may not be sufficient to cover the full extent of ~~properties~~such liabilities. In addition, such risks may not, in all circumstances, be insurable or, in certain circumstances, we may choose not to obtain insurance to protect against specific risks due to the high premiums associated with such insurance or for other reasons. The payment of such uninsured liabilities would reduce the funds available to us. If we suffer a ~~reduction~~significant inevent ~~demand~~or occurrence that is not fully insured, or if the insurer of such event is not solvent, we could be required to divert funds from capital investment or other uses towards covering our liability for ~~properties;~~such events, and we may not be able to continue to obtain insurance on commercially reasonable terms.

·We rely on revenues derived from key tenants.

We derive significant revenues from certain key tenants. We could be adversely affected in the ~~attractiveness~~event of ~~our~~the ~~properties~~bankruptcy toor insolvency of, or a downturn in the business of, any of our key tenants, or ~~buyers;~~in the event that any such tenant does not renew its leases as they expire or renews such leases at lower rental rates.

·Any bankruptcy filings by or relating to any of our tenants could bar us from collecting pre-bankruptcy debts from that tenant, unless we receive an order permitting us to do so from the bankruptcy court. A tenant bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums.

~~competition from other available properties;~~-16-

·Table of Contents

~~changes~~RISKS inRELATED ~~market~~TO ~~rental~~OUR ~~rates and related concessions granted to tenants such as free rent, tenant allowances and tenant improvement allowances; and~~INDUSTRY

·Our ownership of commercial real estate involves a number of risks, the effects of which could adversely affect our business.

~~the~~General ~~need~~economic and market risks. In periods during, or following, a general economic decline or recessionary climate, our assets may not generate sufficient cash to ~~periodically~~pay ~~repair~~expenses, ~~renovate~~service debt or cover maintenance, and, ~~re-lease~~as ~~space~~a result, our results of operations, cash flows and ability to pay dividends (if any) may be adversely affected. Several factors may adversely affect the economic performance and value of our properties. These factors include, among other things:

~~Uncertain~~· ~~economic~~changes ~~conditions~~in ~~may~~the ~~adversely impact current or future tenants and~~national, ~~accordingly,~~regional ~~could affect their ability to pay rents owed to us pursuant to their leases. In periods of economic uncertainty, tenants are more likely to close less profitable locations or to declare bankruptcy,~~ and, pursuant to various bankruptcy laws, leases may be rejected and thereby terminated. Furthermore, our ability to sell or lease our properties at favorable rates, or at all, may be negatively impacted by general or local economic ~~conditions.~~climate;

~~Our~~· ~~ability~~local toreal ~~collect~~estate ~~rent~~conditions ~~from~~such ~~tenants~~as ~~may~~an ~~affect~~oversupply ~~our ability to pay for adequate maintenance, insurance and other operating costs. Also, the expense~~ of ~~owning~~properties ~~and~~or ~~operating~~ a ~~property is not necessarily reduced when circumstances such as market factors cause a~~ reduction in ~~income~~demand ~~from~~for the property. If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take title to the property. In addition, interest rate levels, the availability of financing, changes in laws and governmental regulations (including those governing usage, zoning and taxes) may adversely affect our financial condition.properties;

20· the attractiveness of our properties to tenants or buyers;

~~Leasing~~· ~~risk.~~competition ~~Our operating revenues are dependent upon entering into leases with and collecting rents~~ from ~~tenants.~~other In uncertain economic times, tenants whose leases are expiring may desire to decrease the space they lease or may be unwilling to continue their lease. When leases expire or are terminated, replacement tenants may not be available upon acceptable terms and market rental rates may be lower than the previous contractual rental rates. Also, during uncertain economic conditions, tenants may approach us for additional concessions in order to remain open and operating. The granting of these concessions may adversely affect our results of operations and cash flows to the extent that they result in reduced rental rates, additional capital improvements, or allowances paid to or on behalf of the tenants.properties;

~~Uninsured~~· ~~losses~~changes ~~and~~in ~~condemnation~~market ~~costs.~~rental ~~Accidents,~~rates ~~terrorism incidents, tornados or other acts of God~~ and other losses at our properties for any reason could adversely affect our operating results. Casualties may occur that significantly damage an operating property, and insurance proceeds may be less than the total loss incurred by us. We maintain casualty insurance under policies we believe to be appropriate, but some types of losses, such as those related toconcessions ~~the~~granted termination of longer-term leases and other contracts, generally are not insured. Certain types of insurance may not be available or may be available on terms that could result in large uninsured losses. Property ownership also involves potential liability to ~~third~~tenants ~~parties for~~ such ~~matters~~ as ~~personal~~free ~~injuries occurring on the property. Such losses may not be fully insured. In addition to uninsured losses~~rent, ~~various~~tenant ~~government~~allowances ~~authorities~~and ~~may~~tenant ~~condemn~~improvement ~~all~~allowances; ~~or parts of operating properties. Such condemnations could adversely affect the viability of such projects.~~and

~~Environmental~~· ~~issues. Environmental issues that arise at our properties could have an adverse effect on our financial condition and results of operations. Federal, state and local laws and regulations relating to~~ the ~~protection~~need ~~of the environment may require a current or previous owner or operator of real estate~~ to ~~investigate~~periodically ~~and clean up hazardous or toxic substances or petroleum product releases at a property. If determined to be liable~~repair, ~~the~~renovate ~~owner or operator may have to pay a governmental entity or third parties for property damage~~ and ~~for investigation and clean~~re-uplease ~~costs incurred by such parties in connection with the contamination, or perform such investigation and clean-up itself~~space. Although certain legal protections may be available to prospective purchasers of property, these laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the regulated substances. Even if more than one person may have been responsible for the release of regulated substances at the property, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from regulated substances emanating from that site. Unidentified environmental liabilities could have an adverse effect on our financial condition and results of operations.

~~Liquidity~~Uncertain ~~risk.~~economic ~~Real~~conditions ~~estate~~may ~~investments~~adversely impact ~~are~~current ~~relatively~~or ~~illiquid~~future ~~and~~tenants ~~can be difficult to sell~~ and, ~~convert to cash quickly~~accordingly, ~~especially~~could ifaffect ~~market~~their ~~conditions~~ability ~~are~~to ~~not~~pay ~~favorable.~~rents Asowed ato ~~result,~~us ~~our~~pursuant ~~ability~~ to ~~sell~~their ~~one~~leases. In orperiods ~~more~~ of ~~our~~economic ~~properties~~uncertainty, ~~whether~~tenants inare ~~response~~more likely to ~~any~~close ~~changes~~less inprofitable ~~economic~~locations or ~~other conditions or in response~~ to adeclare ~~change~~bankruptcy, ~~in strategy~~and, ~~may be limited. In the event we want~~ pursuant to ~~sell~~various abankruptcy ~~property~~laws, weleases may ~~not~~ be ~~able~~rejected toand dothereby soterminated. ~~in the desired time period~~Furthermore, ~~the~~our ~~sales~~ability ~~price~~to ofsell ~~the~~or ~~property~~lease ~~may not meet~~ our ~~expectations~~properties at orfavorable ~~requirements~~rates, ~~and~~or weat all, may be ~~required~~negatively toimpacted ~~record~~by angeneral ~~impairment~~or ~~loss~~local oneconomic ~~the property as a result~~conditions.

WeOur ~~face~~ability ~~possible~~to ~~risks~~collect ~~associated~~rent ~~with~~from tenants may affect our ability to pay for adequate maintenance, insurance and other operating costs. Also, the ~~physical~~expense ~~effects~~of owning and operating a property is not necessarily reduced when circumstances such as market factors cause a reduction in income from the property. If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take title to the property. In addition, interest rate levels, the availability of ~~climate~~financing, ~~change~~changes in laws and governmental regulations (including those governing usage, zoning and taxes) may adversely affect our financial condition.

WeLeasing ~~cannot~~risk. ~~assert~~Our ~~with~~operating ~~certainty~~revenues are ~~whether~~dependent ~~climate~~upon ~~change~~entering isinto ~~occurring~~leases with and, ifcollecting ~~so,~~rents atfrom ~~what rate~~tenants. ~~However,~~In ~~the~~uncertain ~~physical~~economic ~~effects~~times, oftenants ~~climate~~whose ~~change~~leases are ~~could~~expiring ~~have~~may adesire ~~material~~to ~~adverse~~decrease ~~effect on our properties, operations and business. To~~ the ~~extent~~space ~~climate~~they ~~change~~lease ~~causes~~or ~~changes~~may inbe ~~weather~~unwilling ~~patterns,~~to ~~our~~continue ~~markets~~their ~~could~~lease. ~~experience~~When ~~increases~~leases inexpire ~~storm~~or ~~intensity. Over time~~are terminated, ~~these~~replacement ~~conditions~~tenants ~~could~~may ~~result~~not inbe ~~declining~~available ~~demand~~upon ~~for~~acceptable ~~office~~terms ~~space~~and inmarket ~~our~~rental ~~buildings~~rates ormay ~~our~~be ~~inability~~lower tothan ~~operate~~ the ~~buildings~~previous contractual atrental ~~all~~rates. ~~Climate~~Also, ~~change~~during ~~may~~uncertain ~~also~~economic ~~have~~conditions, ~~indirect~~tenants ~~effects~~may onapproach ~~our~~us ~~business~~for byadditional ~~increasing~~concessions ~~the~~in ~~cost~~order to ofremain ~~(or~~open ~~making~~and ~~unavailable)~~operating. ~~property~~The ~~insurance~~granting onof ~~terms~~these weconcessions ~~find~~may ~~acceptable,~~adversely ~~increasing~~affect ~~the~~our ~~cost~~results of ~~energy~~operations and ~~increasing~~cash flows to the ~~cost~~extent ofthat ~~snow~~they ~~removal~~result orin ~~repairs~~reduced ~~and~~rental ~~maintenance~~rates, atadditional ~~our~~capital ~~properties.~~improvements, ~~There~~or ~~can~~allowances bepaid noto ~~assurance~~or ~~that climate change will not have a material adverse effect~~ on ~~our~~behalf ~~properties,~~of ~~operations or business~~the tenants.

21Uninsured losses and condemnation costs. Accidents, terrorism incidents, tornadoes or other acts of God and other losses at our properties for any reason could adversely affect our operating results. Casualties may occur that significantly damage an operating property, and insurance proceeds may be less than the total loss incurred by us. We maintain casualty insurance under policies we believe to be appropriate, but some types of losses, such as those related to the termination of longer-term leases and other contracts, generally are not insured. Certain types of insurance may not be available or may be available on terms that could result in large uninsured losses. Property ownership also involves potential liability to third parties for such matters as personal injuries occurring on the property. Such losses may not be fully insured. In addition to uninsured losses, various government authorities may condemn all or parts of operating properties. Such condemnations could adversely affect the viability of such projects.

~~Data security breaches may cause damage to our business and reputation.~~-17-

InTable ~~the ordinary course~~ of our business we maintain sensitive data, including our proprietary business information and the information of our tenants and business partners, in our networks. Notwithstanding the security measures undertaken, our information technology may be vulnerable to attacks or breaches resulting in proprietary information being publicly disclosed, lost or stolen. There can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Protected information, networks, systems and facilities remain vulnerable because the techniques used in such attempted security breaches evolve and may not be recognized or detected until launched against a target. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures.Contents

~~Data~~Environmental issues. Environmental issues that arise at our properties could have an adverse effect on our financial condition and ~~security~~results ~~breaches~~of operations. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or petroleum product releases at a property. If determined to be liable, the owner or operator may have to pay a governmental entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination, or perform such investigation and clean-up itself. Although certain legal protections may be available to prospective purchasers of property, these laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the regulated substances. Even if more than one person may have been responsible for the release of regulated substances at the property, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from regulated substances emanating from that site. Unidentified environmental liabilities could: have an adverse effect on our financial condition and results of operations.

ŸLiquidity risk. Real estate investments are relatively illiquid and can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable. As a result, our ability to sell one or more of our properties, whether in response to any changes in economic or other conditions or in response to a change in strategy, may be limited. In the event we want to sell a property, we may not be able to do so in the desired time period, the sales price of the property may not meet our expectations or requirements, and we may be required to record an impairment loss on the property as a result.

~~disrupt~~We ~~the~~face ~~proper~~possible ~~functioning~~risks ofassociated ~~our~~with ~~networks~~the ~~and~~physical ~~systems and therefore our operations and/or those~~ effects of ~~our~~climate ~~client tenants;~~change.

ŸWe cannot assert with certainty whether climate change is occurring and, if so, at what rate. However, the physical effects of climate change could have a material adverse effect on our properties, operations and business. To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity. Over time, these conditions could result in declining demand for office space in our buildings or our inability to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy and increasing the cost of snow removal or repairs and maintenance at our properties. There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.

~~result~~Data insecurity ~~misstated~~breaches ~~financial~~may ~~reports,~~cause ~~violations~~damage ofto ~~loan~~our ~~covenants,~~business ~~missed reporting deadlines,~~ and~~/or~~ ~~missed permitting deadlines;~~reputation.

ŸIn the ordinary course of our business we maintain sensitive data, including our proprietary business information and the information of our tenants and business partners, in our networks. Notwithstanding the security measures undertaken, our information technology may be vulnerable to attacks or breaches resulting in proprietary information being publicly disclosed, lost or stolen. There can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Protected information, networks, systems and facilities remain vulnerable because the techniques used in such attempted security breaches evolve and may not be recognized or detected until launched against a target. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures.

~~result~~Data ~~in our inability to properly monitor our compliance with the rules~~ and ~~regulations~~security ~~regarding~~breaches ~~our qualification as a REIT;~~could:

Ÿ· disrupt the proper functioning of our networks and systems and therefore our operations and/or those of our client tenants;

· result in ~~the~~misstated ~~unauthorized~~financial ~~access to~~reports, ~~and~~violations ~~destruction, loss, theft, misappropriation, or release~~ of ~~proprietary,~~loan ~~confidential~~covenants, ~~sensitive,~~missed orreporting ~~otherwise valuable information of ours or others~~deadlines, ~~which others could use to compete against us~~ and/or ~~for~~missed ~~disruptive,~~permitting ~~destructive, or otherwise harmful purposes and outcomes~~deadlines;

Ÿ· result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;

· result in ~~our~~the ~~inability~~unauthorized access to, ~~maintain~~and ~~the~~destruction, ~~building~~loss, ~~systems~~theft, ~~relied~~misappropriation, ~~upon~~or byrelease ~~our~~of ~~client~~proprietary, ~~tenants~~confidential, ~~for~~sensitive, ~~the~~or ~~efficient~~otherwise ~~use~~valuable information of ~~their~~ours ~~leased~~or ~~space~~others, which others could use to compete against us or for disruptive, destructive, or otherwise harmful purposes and outcomes;

Ÿ· result in our inability to maintain the building systems relied upon by our client tenants for the efficient use of their leased space;

· require significant management attention and resources to remedy any damages that result;

Ÿ· subject us to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; and/or

~~subject~~· usdamage toour ~~claims~~reputation ~~for~~among ~~breach~~our ofclient ~~contract,~~tenants ~~damages, credits, penalties, or termination of leases or other agreements;~~ and~~/or~~ investors.

Ÿ-18-

~~damage~~Table ~~our~~of ~~reputation among our client tenants and investors.~~Contents

Competition may impede our ability to attract or retain tenants or re-let space, which could materially and adversely affect us.

We face significant competition for tenants from other owners and operators of office, industrial and retail properties in the Minneapolis-St. Paul area and expect to experience similar significant competition in areas where we acquire additional properties. These competitors may possess more substantial resources and access to capital than we have, as well as greater expertise or flexibility in designing space to meet prospective tenants’ needs, or may be more willing, especially in difficult economic times, to make space available to prospective tenants at lower prices than comparable spaces in our properties. Thus, competition could negatively affect our ability to attract and retain tenants and may reduce the rents we are able to charge, which could materially and adversely affect us.

Compliance or failure to comply with federal, state and local regulatory requirements could result in substantial costs.

Our properties are subject to various federal, state and local regulatory requirements, such as the Americans with Disabilities Act and state and local fire, health and life safety requirements. Compliance with these regulations may involve upfront expenditures and ongoing costs. If we fail to comply with these requirements, we could incur fines or other monetary damages. We do not know whether existing requirements will change or whether compliance with existing or future requirements will require significant unanticipated expenditures that will affect our cash flows and results of operations.

22We may face risks associated with property acquisitions.

We ~~may~~intend ~~face~~to ~~risks~~invest ~~associated~~in ~~with~~ property acquisitions., which carry certain risks including:

We· ~~intend~~we tomay ~~invest~~have indifficulty ~~property~~finding ~~acquisitions,~~properties ~~which~~that ~~carry~~are ~~certain~~consistent ~~risks~~with ~~including:~~our strategy and that meet our standards;

· we may have difficulty negotiating with new or existing tenants;

we· ~~may~~the ~~have~~extent ~~difficulty~~of ~~finding~~competition ~~properties~~for ~~that~~a ~~are~~particular ~~consistent~~market ~~with~~for ~~our~~attractive ~~strategy~~acquisitions ~~and~~may ~~that~~hinder ~~meet~~ our ~~standards~~desired level of property acquisitions;

· the actual costs and timing of repositioning or redeveloping acquired properties may be greater than our estimates;

· we may ~~have~~acquire ~~difficulty~~properties ~~negotiating~~subject ~~with~~to ~~new~~liabilities and without any recourse, or ~~existing~~with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties;

· the occupancy levels, lease-up timing and rental rates may not meet our expectations;

· the ~~extent~~acquired ofproperty ~~competition~~may ~~for~~be in a ~~particular~~ market ~~for~~that ~~attractive~~is ~~acquisitions~~unfamiliar ~~may~~to ~~hinder~~us ~~our~~and ~~desired~~could ~~level~~present ofadditional ~~property~~unforeseen ~~acquisitions~~business challenges;

· acquired properties may fail to perform as expected;

· the ~~actual~~timing ~~costs~~of ~~and~~property acquisitions may lag the timing of ~~repositioning~~property ordispositions, ~~redeveloping~~leading ~~acquired~~to ~~properties~~periods ~~may~~of betime ~~greater~~where ~~than~~projects ~~our~~proceeds ~~estimates~~are not invested as profitably as we desire;

· we may be unable to obtain financing for acquisitions on favorable terms or at all; and

· we may ~~acquire~~be ~~properties~~unable ~~subject~~ to ~~liabilities~~quickly and ~~without~~efficiently ~~any~~integrate ~~recourse,~~new oracquisitions ~~with~~into ~~only~~our ~~limited~~existing ~~recourse~~operations, ~~with~~and ~~respect~~significant tolevels ~~unknown liabilities such as liabilities for clean-up~~ of ~~undisclosed~~management’s ~~environmental~~time ~~contamination,~~and ~~claims~~attention bycould ~~tenants,~~be ~~vendors~~involved ~~or other persons dealing with the former owners of the properties, liabilities incurred~~ in ~~the~~these ~~ordinary course of business and claims for indemnification by general partners~~projects, ~~directors,~~diverting ~~officers~~their ~~and~~time ~~others~~from ~~indemnified~~our byday-to-day ~~the former owners of the properties;~~operations.

·-19-

~~the~~Table ~~occupancy~~of ~~levels, lease-up timing and rental rates may not meet our expectations;~~Contents

·Any of these risks could have an adverse effect on our results of operations and financial condition. In addition, we may acquire properties subject to liabilities, and with no or limited recourse against the prior owners or other third parties. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our business, results of operations and cash flow.

~~the~~We ~~acquired~~may ~~property~~acquire ~~may~~properties beor inportfolios aof ~~market~~properties through ~~that~~tax isdeferred ~~unfamiliar~~contribution totransactions, uswhich could result in dilution and ~~could~~limit ~~present~~our ~~additional~~ability ~~unforeseen~~to ~~business~~sell ~~challenges;~~such assets.

·In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in the Operating Partnership, which may dilute our interest in our properties. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the respective contributor’s ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties or the allocation of partnership debt to the contributor to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

~~acquired~~Security ~~properties~~breaches ~~may~~and ~~fail~~other disruptions could compromise our information and expose us to ~~perform~~liability, aswhich ~~expected;~~would cause our business and reputation to suffer.

·In the ordinary course of our business we acquire and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current tenants, our employees and third-party service providers in our branch offices and on our networks and website. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could adversely affect our results of operations and competitive position.

~~the timing of property acquisitions may lag the timing of property dispositions, leading to periods of time where projects proceeds are not invested as profitably as we desire;~~-20-

·Table of Contents

weRISKS ~~may~~RELATED beTO ~~unable~~FEDERAL toINCOME ~~obtain financing for acquisitions on favorable terms or at all; and~~TAX

·If we elect to be taxed as a REIT, any failure to qualify as a REIT for federal income tax purposes could have a material adverse impact on us and our shareholders.

Once we ~~may~~meet bethe ~~unable~~specific criteria to qualify ~~quickly~~as a REIT and ~~efficiently~~it ~~integrate~~is ~~new~~advantageous ~~acquisitions~~to ~~into~~the ~~our~~shareholders ~~existing~~to ~~operations~~do so, we intend to elect to be treated as a REIT for federal income tax purposes and ~~significant~~operate ~~levels~~in ofa ~~management’s~~manner ~~time~~to continue to qualify as a REIT. Qualification as a REIT involves the application of highly technical and ~~attention~~complex ~~could~~provisions beof ~~involved~~the inInternal ~~these~~Revenue ~~projects~~Code (the “Code”), ~~diverting~~for ~~their~~which ~~time~~there ~~from~~are only limited judicial or administrative interpretations. Certain facts and circumstances not entirely within our ~~day-~~control may affect our ability to~~-day~~ ~~operations~~qualify as a REIT. In addition, we can provide no assurance that legislation, new regulations, administrative interpretations or court decisions will not adversely affect our qualification as a REIT or the federal income tax consequences of our REIT status.

~~Any~~If ofwe ~~these~~were ~~risks~~to ~~could~~fail ~~have~~to anqualify ~~adverse~~as ~~effect~~a onREIT or maintain our ~~results~~REIT ofstatus, ~~operations~~we ~~and~~would ~~financial~~not ~~condition.~~be allowed a deduction for distributions to shareholders in computing our taxable income. In ~~addition~~this case, we ~~may~~would ~~acquire~~be ~~properties~~ subject to ~~liabilities~~federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, ~~and~~we ~~with~~also nowould orbe ~~limited~~disqualified ~~recourse~~from ~~against~~operating as a REIT for the ~~prior~~four ~~owners~~taxable oryears ~~other~~following ~~third~~the ~~parties~~year during which qualification was lost. As a result, ifwe awould ~~liability~~be ~~were~~subject ~~asserted~~to federal ~~against~~and usstate ~~based~~income ~~upon~~taxes ~~ownership~~which could adversely affect our results of ~~those~~operations ~~properties,~~and distributions to shareholders. Although we ~~might~~currently ~~have~~intend to ~~pay~~operate ~~substantial~~in ~~sums~~a manner designed to ~~settle~~qualify oras ~~contest~~a itREIT, ~~which~~it ~~could~~is ~~adversely~~possible ~~affect~~that ~~our~~future ~~business~~economic, ~~results~~market, oflegal, ~~operations~~tax or ~~and~~other ~~cash~~considerations ~~flow~~may cause us to revoke the REIT election.

~~Pursuant~~In order to ~~the~~qualify ~~Formation~~as ~~Transactions, our Operating Partnership acquired~~ a ~~49%~~REIT, ~~interest~~under current inlaw, anwe ~~entity~~generally ~~that~~are ~~owns~~required aneach ~~industrial~~taxable ~~complex~~year ~~located~~to indistribute ~~the~~to ~~Minneapolis-St.~~our ~~Paul~~shareholders ~~metropolitan~~at ~~area.~~least ~~However,~~90% ~~affiliates~~ of ~~MG Kaminski,~~ our ~~Chief~~net ~~Executive~~taxable ~~Officer,~~income (excluding ~~own~~any ~~the~~net ~~other~~capital ~~51%~~gain). ~~interest~~To in the ~~entity.~~extent ~~Talon~~that ~~RE,~~we ado ~~wholly~~not ~~owned~~distribute ~~subsidiary~~all of our ~~Operating~~net ~~Partnership,~~capital ~~entered~~gain ~~into~~or adistribute ~~contribution~~at ~~agreement~~least ~~with~~90%, but ~~Mr.~~less ~~Kaminski~~than to100%, ~~acquire~~of ~~his~~our ~~remaining~~other ~~interest~~taxable inincome, ~~the~~we ~~entity,~~are subject to ~~receiving~~tax ~~consent~~on to the ~~transfer~~undistributed ~~from~~amounts ~~the~~at ~~entity’s~~regular ~~lender,~~corporate ~~but~~rates. In ~~there~~addition, ~~can~~we beare nosubject ~~assurance~~to ~~that~~a ~~the~~4% ~~lender~~nondeductible ~~will~~excise ~~consent~~tax to the ~~transfer~~extent or that wedistributions ~~will~~paid ~~ever~~by ~~acquire~~us aduring ~~controlling~~the ~~interest~~calendar inyear are ~~the~~less ~~entity~~than ~~that~~the ~~owns~~sum of the ~~complex.~~following:

We· ~~may~~85% ~~acquire properties or portfolios~~ of ~~properties through tax deferred contribution transactions, which could result in dilution and limit~~ our ~~ability~~ordinary ~~to sell such assets.~~income;

In· ~~the~~95% ~~future we may acquire properties or portfolios~~ of ~~properties through tax deferred contribution transactions in exchange for partnership interests in the Operating Partnership, which may dilute~~ our ~~interest~~net incapital our properties. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the respective contributor’s ability to defer recognition of taxable gain ~~through~~income ~~restrictions~~for on our ability to dispose of the acquired properties or the allocation of partnership debt to the contributor to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that ~~would~~year; ~~be favorable absent such restrictions.~~and

23· 100% of our undistributed taxable income (including any net capital gains) from prior years.

~~Security~~We ~~breaches~~generally intend to make distributions to our shareholders to comply with the 90% distribution requirement to avoid corporate-level tax on undistributed taxable income and ~~other~~to ~~disruptions~~avoid the nondeductible excise tax. Distributions could ~~compromise~~be ~~our~~made ~~information~~in cash, stock or in a combination of cash and ~~expose~~stock. Differences in timing between taxable income and cash available for distribution could require us to ~~liability~~borrow funds to meet the 90% distribution requirement, ~~which~~to ~~would~~avoid ~~cause~~corporate-level ~~our~~tax ~~business~~on undistributed taxable income and ~~reputation~~to avoid the nondeductible excise tax. Satisfying the distribution requirements may also make it more difficult to ~~suffer~~fund new investment or development projects.

In the ordinary course of our business we acquire and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current tenants, our employees and third-party service providers in our branch offices and on our networks and website. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could adversely affect our results of operations and competitive position.21-

~~RISKS~~Table ~~RELATED~~of ~~TO FEDERAL INCOME TAX~~Contents

If we elect to be taxed as a REIT, ~~any~~certain ~~failure~~property transfers tomay ~~qualify~~be characterized as aprohibited ~~REIT~~transactions, ~~for~~resulting ~~federal~~in ~~income~~a tax ~~purposes~~on ~~could~~any ~~have~~gain aattributable ~~material~~to ~~adverse~~the ~~impact on us and our shareholders~~transaction.

~~Once~~From time to time, we ~~meet~~may transfer or otherwise dispose of some of our properties. Under the ~~specific~~Code, ~~criteria~~if we elect to ~~qualify~~be taxed as a REIT, ~~and~~any itgains isresulting ~~advantageous~~from totransfers or ~~the~~dispositions, ~~shareholders~~from toother dothan soa taxable REIT subsidiary, wethat ~~intend~~are deemed to ~~elect~~be toprohibited transactions would be ~~treated~~subject asto a 100% ~~REIT~~tax ~~for~~on ~~federal~~any ~~income~~gain ~~tax~~associated ~~purposes~~with ~~and~~the ~~operate~~transaction. Prohibited transactions generally include sales of assets that constitute inventory or other property held for sale to customers in athe ~~manner~~ordinary course of business. Since we intend to ~~continue~~acquire properties primarily for investment purposes, we do not believe that our occasional transfers or disposals of property will be deemed to ~~qualify~~be prohibited astransactions. However, whether or not a ~~REIT.~~transfer ~~Qualification~~or sale of property qualifies as a ~~REIT~~prohibited ~~involves~~transaction ~~the~~depends ~~application~~on all ofthe ~~highly~~facts ~~technical~~ and ~~complex~~circumstances ~~provisions~~surrounding of the particular transaction. The Internal Revenue ~~Code~~Service (the “~~Code~~IRS”), ~~for~~may contend ~~which~~that ~~there~~certain ~~are~~transfers ~~only~~or ~~limited~~disposals ~~judicial~~of orproperties ~~administrative~~by ~~interpretations.~~us ~~Certain~~are ~~facts~~prohibited ~~and~~transactions. ~~circumstances~~If ~~not~~the ~~entirely~~IRS ~~within~~were ~~our~~to ~~control~~argue ~~may~~successfully that ~~affect~~a ~~our~~transfer ~~ability~~or todisposition ~~qualify~~of asproperty constituted a ~~REIT.~~prohibited ~~In addition~~transaction, we ~~can~~would ~~provide~~be norequired ~~assurance~~to ~~that~~pay ~~legislation,~~a ~~new~~tax ~~regulations,~~equal ~~administrative~~to ~~interpretations~~100% of orany ~~court~~gain ~~decisions~~allocable ~~will~~to ~~not~~us ~~adversely~~from the prohibited transaction. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT orfor ~~the~~ federal income tax ~~consequences of our REIT status~~purposes.

IfThe westock ~~were~~ownership tolimit ~~fail~~imposed toby ~~qualify~~the as a REIT or maintain our REIT status, we would not be allowed a deduction for distributions to shareholders in computing our taxable income. In this case, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief under certain Code ~~provisions, we also would be disqualified from operating as a REIT~~ for ~~the four taxable years following the year during which qualification was lost. As a result, we would be subject to federal~~ REITs and ~~state income taxes which could adversely affect~~ our ~~results~~articles ofas ~~operations and distributions to shareholders. Although~~ we ~~currently~~ intend to ~~operate~~amend ~~in a manner designed to qualify as a REIT,~~ it ~~is possible that future economic, market, legal, tax or other considerations~~ may ~~cause~~restrict usbusiness tocombination ~~revoke the REIT election~~opportunities.

InTo ~~order to~~ qualify as a REIT, under ~~current~~the ~~law~~Code, not wemore ~~generally~~than ~~are~~50% ~~required~~in ~~each~~value ~~taxable~~of ~~year~~our tooutstanding ~~distribute~~stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to ~~our~~include ~~shareholders~~certain entities) at ~~least~~any ~~90%~~time during the last half of each taxable year after our ~~net~~first ~~taxable~~year ~~income~~in ~~(excluding~~which ~~any~~we qualify ~~net~~as ~~capital~~a ~~gain)~~REIT. ToWe anticipate amending our articles such that, with certain exceptions, it would authorize our board of directors to take the ~~extent~~actions that are necessary or appropriate to preserve our qualification as a REIT once we doelect ~~not~~REIT ~~distribute~~status. ~~all~~Unless an exemption is granted by our board of directors, our ~~net~~articles ~~capital~~are ~~gain~~expected to prohibit the actual, beneficial or ~~distribute~~constructive ownership atby ~~least~~any ~~90%,~~person ~~but~~of ~~less~~more than ~~100~~10% in value or number of shares, whichever is more restrictive, of the outstanding shares of our ~~other~~common ~~taxable~~stock ~~income,~~or wemore ~~are~~than ~~subject~~10% toin ~~tax~~value onof the ~~undistributed~~aggregate ~~amounts~~outstanding atshares ~~regular~~of ~~corporate~~all ~~rates~~classes and series of our stock. In addition, our wearticles ~~are~~would ~~subject~~generally toprohibit abeneficial 4%or ~~nondeductible~~constructive ~~excise~~ownership ~~tax~~of toshares ~~the~~of ~~extent~~our capital stock by any person that ~~distributions~~owns, actually ~~paid~~or byconstructively, an interest in any of our tenants that would cause us ~~during~~to ~~the~~own, ~~calendar~~actually ~~year~~or ~~are~~constructively, ~~less~~10% ~~than~~or ~~the~~more of ~~sum~~any of ~~the~~our ~~following:~~tenants. Our board of directors may grant an exemption in its sole discretion, subject to such conditions, representations and undertakings as it may determine.

·These ownership limitations in our articles are common in REIT charters and are intended, among other purposes, to assist us in complying with the tax law requirements and to minimize administrative burdens. However, these ownership limits might also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our shareholders. Our board of directors may grant MG Kaminski, our Chief Executive Officer, and his affiliates an exemption from the ownership limits.

~~85%~~If ofwe elect to be taxed as a REIT, complying with REIT requirements may affect our ~~ordinary~~profitability ~~income;~~and may force us to liquidate or forgo otherwise attractive investments.

·To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our shareholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our business results, profitability and ability to execute our business plan. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.

~~95% of our net capital gain income for that year; and~~-22-

·Table of Contents

~~100%~~New oflegislation ~~our~~or ~~undistributed~~administrative ~~taxable~~or ~~income~~judicial ~~(including~~action, in ~~any~~each ~~net~~instance ~~capital~~potentially ~~gains)~~with ~~from~~retroactive ~~prior~~effect, ~~years~~could make it more difficult or impossible for us to qualify as a REIT.

WeThe ~~generally~~present ~~intend~~federal toincome ~~make~~tax ~~distributions~~treatment of toREITs ~~our~~may ~~shareholders~~be tomodified, ~~comply~~possibly with ~~the~~retroactive ~~90%~~effect, ~~distribution~~by ~~requirement~~legislative, tojudicial ~~avoid~~or ~~corporate-level~~administrative ~~tax~~action onat ~~undistributed~~any ~~taxable~~time, ~~income~~which could ~~and~~affect ~~to avoid~~ the ~~nondeductible~~federal ~~excise~~income tax. ~~Distributions~~treatment ~~could~~of bean ~~made~~investment in ~~cash,~~us. ~~stock~~The orfederal inincome atax ~~combination~~rules ofrelating ~~cash~~to ~~and~~REITs ~~stock.~~constantly are ~~Differences~~under inreview ~~timing~~by ~~between~~persons ~~taxable~~involved ~~income~~in ~~and~~the ~~cash~~legislative ~~available~~process, ~~for~~the ~~distribution~~IRS ~~could~~and ~~require~~the usU.S. toTreasury ~~borrow~~Department, ~~funds~~which toresults ~~meet~~in ~~the~~frequent statutory ~~90%~~changes ~~distribution~~and ~~requirement,~~revisions to ~~avoid~~regulations ~~corporate-level~~and ~~tax~~interpretations. onRevisions ~~undistributed~~in ~~taxable~~federal ~~income~~tax laws and tointerpretations ~~avoid~~thereof ~~the~~could adversely ~~nondeductible~~affect ~~excise~~us ~~tax.~~or ~~Satisfying~~cause ~~the~~us ~~distribution~~to ~~requirements~~change ~~may~~our ~~also~~investments ~~make~~and itcommitments ~~more~~and ~~difficult~~affect tothe ~~fund~~tax ~~new~~considerations ~~investment~~of oran ~~development~~investment ~~projects~~in us.

24RISKS RELATED TO OUR SECURITIES

IfOur wecommon ~~elect~~stock tois beconsidered ~~taxed~~a as“penny astock.” The ~~REIT,~~application ~~certain~~of ~~property~~the ~~transfers~~“penny ~~may~~stock” berules ~~characterized~~to asour ~~prohibited~~common ~~transactions~~stock could limit the trading and liquidity of our common stock, ~~resulting~~adversely inaffect athe ~~tax~~market onprice ~~any~~of ~~gain~~our ~~attributable~~common tostock and increase the transaction costs to sell those shares.

~~From~~Our ~~time~~common tostock ~~time,~~is wea ~~may~~“low-priced” security ~~transfer~~ or ~~otherwise~~“penny ~~dispose~~stock” ofunder ~~some~~rules ofpromulgated ~~our~~under ~~properties. Under~~ the ~~Code,~~Securities ifExchange weAct ~~elect~~of to1934, ~~be taxed~~ as aamended. ~~REIT,~~In ~~any~~accordance with ~~gains~~these ~~resulting from transfers or dispositions~~rules, ~~from~~broker-dealers ~~other~~participating ~~than~~in atransactions ~~taxable~~in ~~REIT~~low-priced ~~subsidiary,~~securities ~~that~~must ~~are~~first ~~deemed~~deliver ~~to be prohibited transactions would be subject to~~ a ~~100%~~risk ~~tax~~disclosure ondocument which ~~any~~describes ~~gain~~the risks associated with ~~the~~such ~~transaction.~~stocks, ~~Prohibited~~the ~~transactions~~broker-dealers’ ~~generally~~duties ~~include sales of assets that constitute inventory or other property held for sale to customers~~ in selling the ~~ordinary course of business. Since we intend to acquire properties primarily for investment purposes~~stock, wethe docustomer’s rights ~~not~~and ~~believe~~remedies ~~that~~and ~~our~~certain ~~occasional~~market ~~transfers~~and orother ~~disposals of property will be deemed to be prohibited transactions~~information. ~~However~~Furthermore, ~~whether~~broker-dealers ormust ~~not~~make a ~~transfer~~suitability ordetermination approving ~~sale~~the ofcustomer ~~property~~for ~~qualifies~~low-priced asstock atransactions ~~prohibited~~based ~~transaction depends~~ on ~~all~~ the ~~facts~~customer’s ~~and~~financial ~~circumstances~~situation, ~~surrounding~~investment ~~the~~experience and ~~particular transaction~~objectives. ~~The~~Broker-dealers ~~Internal~~must ~~Revenue~~also ~~Service~~disclose ~~(the~~these ~~“IRS”)~~restrictions ~~may~~in ~~contend~~writing ~~that~~to ~~certain~~the ~~transfers~~customer, orobtain ~~disposals~~specific ofwritten ~~properties~~consent from bythe uscustomer, ~~are~~and ~~prohibited~~provide ~~transactions.~~monthly Ifaccount ~~the~~statements ~~IRS were~~ to ~~argue~~the ~~successfully~~customer. ~~that~~The aeffect ~~transfer or disposition~~ of ~~property~~these ~~constituted~~restrictions awill ~~prohibited~~likely ~~transaction,~~decrease the wewillingness ~~would~~of bebroker-dealers ~~required~~ to ~~pay~~make a ~~tax~~market ~~equal~~in toour ~~100%~~common ofstock, ~~any~~will ~~gain~~decrease ~~allocable~~liquidity toof usour ~~from~~common ~~the~~stock ~~prohibited~~and will increase transaction. Incosts ~~addition,~~for ~~income~~sales ~~from~~and apurchases ~~prohibited~~of ~~transaction might adversely affect~~ our ~~ability~~common tostock ~~satisfy the income tests for qualification~~ as acompared ~~REIT~~to ~~for~~other ~~federal income tax purposes~~securities.

~~The~~Shareholders may ~~stock~~be ~~ownership~~diluted ~~limit~~significantly ~~imposed~~through byour efforts to obtain financing or complete acquisitions through the ~~Code~~issuance ~~for~~of ~~REITs~~additional shares ~~and~~of our ~~articles~~common asstock weor ~~intend~~limited topartnership ~~amend~~units itof ~~may~~the ~~restrict~~Operating ~~business~~Partnership, ~~combination~~which ~~opportunities~~are redeemable for shares of our common stock.

ToWe ~~qualify~~are asauthorized ato ~~REIT~~issue ~~under~~up ~~the~~to ~~Code~~(1) 90,000,000 ~~not~~shares ~~more~~of ~~than~~common ~~50%~~stock inand ~~value~~(2) of10,000,000 ~~our~~shares ~~outstanding~~of preferred stock. ~~may~~Our beboard of ~~owned,~~directors ~~directly~~has orthe ~~indirectly~~authority, bywithout ~~five~~action or ~~fewer~~vote ~~individuals~~of ~~(as defined in~~ the ~~Code~~shareholders, to ~~include~~issue ~~certain~~all ~~entities)~~or atpart ~~any~~of ~~time during~~ the ~~last~~authorized ~~half~~but unissued shares of ~~each~~common ~~taxable~~stock ~~year~~and ~~after~~preferred ~~our~~stock ~~first~~with ~~year~~various inpreferences ~~which~~and weother ~~qualify as a REIT~~rights. ~~We anticipate amending our articles such that~~Additionally, ~~with~~the ~~certain~~limited ~~exceptions,~~partnership units ~~it would authorize our board~~ of ~~directors to take~~ the ~~actions~~Operating ~~that~~Partnership are ~~necessary~~redeemable orfor ~~appropriate~~shares toof ~~preserve~~ our ~~qualification~~common asstock, aand ~~REIT once~~ we, ~~elect~~as ~~REIT~~the ~~status.~~sole ~~Unless~~general ~~an exemption is granted by our board of directors~~partner, ~~our articles~~ are ~~expected~~ authorized to ~~prohibit~~issue ~~the~~additional ~~actual,~~interests ~~beneficial or constructive ownership by any person of more than 10%~~ in ~~value or number of shares, whichever is more restrictive, of~~ the ~~outstanding~~Operating ~~shares~~Partnership ~~of our common stock or more than 10%~~ in ~~value of~~ the ~~aggregate~~form ~~outstanding shares~~ of ~~all~~such ~~classes and series of our stock~~units. ~~In addition~~Moving forward, ~~our~~we ~~articles~~may ~~would~~attempt ~~generally~~to ~~prohibit~~conduct ~~beneficial~~acquisitions and/or ~~constructive~~mergers ~~ownership~~ of ~~shares~~other ofentities ~~our~~or ~~capital~~assets ~~stock~~using byour ~~any~~common ~~person~~stock ~~that owns, actually~~ or ~~constructively,~~limited partnership anunits ~~interest~~of inthe ~~any~~Operating ofPartnership ~~our~~as ~~tenants~~payment ~~that~~for ~~would~~such ~~cause~~transactions. usIf tosuch transactions ~~own~~occur, ~~actually~~this ormay ~~constructively,~~result ~~10%~~in orsubstantial ~~more~~dilution of ~~any~~the ofownership ~~our~~interests ~~tenants. Our board~~ of ~~directors~~existing ~~may grant an exemption in its sole discretion~~shareholders, ~~subject~~and todilute ~~such~~the book ~~conditions,~~value ~~representations~~of ~~and~~our ~~undertakings~~common ~~as it may determine~~stock.

These ownership limitations in our articles are common in REIT charters and are intended, among other purposes, to assist us in complying with the tax law requirements and to minimize administrative burdens. However, these ownership limits might also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our shareholders. Our board of directors may grant MG Kaminski, our Chief Executive Officer, and his affiliates an exemption from the ownership limits.-23-

IfTable weof ~~elect to be taxed as a REIT, complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.~~Contents

ToThe ~~qualify as a REIT, we must continually satisfy tests concerning, among other things,~~ Over-the-Counter ~~nature~~Bulletin ~~and~~Board ~~diversification~~is ofa ~~our assets~~quotation system, the sources of our income and the amounts we distribute to our shareholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to shareholders at disadvantageous times or when we do not ~~have~~an ~~funds~~issuer ~~readily~~listing ~~available for distribution. As a result~~service, ~~having to comply with the distribution requirement could cause us to: (1) sell assets in adverse~~ market ~~conditions; (2) borrow on unfavorable terms;~~ or ~~(3)~~exchange. ~~distribute amounts that would otherwise be invested in future acquisitions~~Therefore, ~~capital~~buying ~~expenditures~~and orselling ~~repayment~~stock ofon ~~debt. Accordingly, satisfying~~ the ~~REIT~~OTC ~~requirements~~Bulletin ~~could~~Board ~~have~~is annot as ~~adverse~~efficient ~~effect~~as onbuying ~~our business results, profitability~~ and ~~ability~~selling tostock ~~execute~~through ~~our~~an ~~business plan~~exchange. ~~Moreover,~~As ifa ~~we are compelled to liquidate our investments to meet any of these asset~~result, ~~income~~it ~~or distribution tests, or to repay obligations to our lenders, we~~ may be ~~unable~~difficult tofor ~~comply~~you ~~with~~to ~~one~~sell oryour ~~more~~common ~~of the requirements applicable to REITs~~ stock or you may not be ~~subject~~able to asell ~~100%~~your ~~tax~~common onstock ~~any~~for ~~resulting~~an ~~gain~~optimum iftrading ~~such sales constitute prohibited transactions~~price.

25Our common stock is quoted on the Over the Counter Bulletin Board (the “OTCBB”). The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.

~~New~~When ~~legislation~~fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities may be canceled or ~~administrative~~edited like orders for other securities. All requests to change or ~~judicial~~cancel ~~action~~an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in ~~each~~handling ~~instance~~OTCBB ~~potentially~~trades, ~~with~~order ~~retroactive~~processing ~~effect~~and reporting may be delayed, ~~could~~and ~~make~~an itindividual ~~more~~may ~~difficult~~not be able to cancel or ~~impossible~~edit ~~for~~an usorder. Consequently, one may not be able to ~~qualify~~sell asshares of acommon ~~REIT~~stock at the optimum trading prices.

The ~~present~~dealer’s ~~federal~~spread ~~income~~(the ~~tax~~difference between ~~treatment~~the ofbid ~~REITs~~and ask prices) may be ~~modified,~~large ~~possibly~~and ~~with~~may ~~retroactive~~result ~~effect,~~in bysubstantial ~~legislative,~~losses ~~judicial~~to orthe ~~administrative~~seller ~~action~~of atsecurities ~~any~~on ~~time,~~the ~~which~~OTCBB ~~could~~if ~~affect~~ the common ~~federal~~stock ~~income~~or ~~tax~~other ~~treatment~~security ofmust anbe ~~investment~~sold ~~in us~~immediately. ~~The~~Further, ~~federal~~purchasers ~~income~~of ~~tax~~securities ~~rules~~may ~~relating~~incur toan ~~REITs~~immediate ~~constantly~~“paper” loss ~~are~~due ~~under~~to ~~review by persons involved in~~ the ~~legislative~~price ~~process, the IRS and the U~~spread.S. ~~Treasury Department~~Moreover, ~~which~~dealers ~~results~~trading inon ~~frequent~~the ~~statutory~~OTCBB ~~changes~~may ~~and~~not ~~revisions~~have toa ~~regulations~~bid ~~and~~price ~~interpretations.~~for ~~Revisions~~securities inbought ~~federal tax laws~~ and ~~interpretations~~sold ~~thereof~~through the ~~could~~OTCBB. ~~adversely~~Due ~~affect~~to usthe orforegoing, ~~cause~~demand usfor tosecurities ~~change~~that ~~our~~are ~~investments~~traded ~~and~~through ~~commitments and affect~~ the ~~tax~~OTCBB ~~considerations~~may ofbe andecreased ~~investment~~or ~~in us~~eliminated.

~~RISKS~~In ~~RELATED~~addition, TOwe ~~OUR~~have ~~SECURITIES~~made multiple filings of our reports under the Securities Exchange Act of 1934 following the required filing date. This could result in our delisting from the OTC Bulletin Board.

~~Our~~We ~~common~~expect ~~stock~~volatility isin ~~considered a “penny stock.” The application of~~ the ~~“penny~~price ~~stock” rules to our common stock could limit the trading and liquidity~~ of our common stock, which ~~adversely~~may ~~affect~~subject ~~the~~us ~~market~~to ~~price~~securities oflitigation ~~our~~resulting ~~common~~in ~~stock~~substantial costs and ~~increase~~liabilities ~~the~~and ~~transaction~~diverting ~~costs~~management’s toattention and ~~sell those shares~~resources.

~~Our~~The ~~common~~market ~~stock~~for isour acommon ~~“low-priced” security or “penny~~ stock” ~~under~~may ~~rules~~be characterized ~~promulgated~~by ~~under~~significant ~~the~~price ~~Securities~~volatility ~~Exchange~~when ~~Act~~compared ofto ~~1934,~~seasoned ~~as amended. In accordance with these rules~~issuers, ~~broker-dealers~~and ~~participating~~we inexpect ~~transactions~~that inour ~~low-priced~~share ~~securities~~price ~~must~~will ~~first~~be ~~deliver~~more volatile than a ~~risk~~seasoned ~~disclosure~~issuer ~~document~~for ~~which describes~~ the ~~risks~~indefinite ~~associated~~future. ~~with~~In ~~such stocks,~~ the ~~broker-dealers’ duties in selling the stock~~past, ~~the~~plaintiffs ~~customer’s~~have ~~rights~~often ~~and~~initiated ~~remedies~~securities ~~and~~class ~~certain~~action litigation ~~market~~against ~~and other information. Furthermore, broker-dealers must make~~ a ~~suitability~~company ~~determination~~following ~~approving~~periods ~~the~~of ~~customer~~volatility ~~for~~in ~~low-priced stock transactions based on~~ the ~~customer’s~~market ~~financial~~price ~~situation,~~of ~~investment~~its ~~experience and objectives~~securities. ~~Broker-dealers~~We ~~must~~may ~~also disclose these restrictions~~ in ~~writing to~~ the ~~customer,~~future ~~obtain~~be ~~specific~~a ~~written~~target of ~~consent~~similar ~~from the customer, and provide monthly account statements to the customer~~litigation. ~~The~~Securities ~~effect~~litigation ofcould ~~these~~result ~~restrictions will likely decrease the willingness of broker-dealers to make a market~~ in ~~our~~substantial ~~common~~costs ~~stock,~~and ~~will~~liabilities ~~decrease liquidity of our common stock~~ and ~~will~~could ~~increase~~divert ~~transaction~~management’s attention ~~costs~~from ~~for sales and purchases of~~ our ~~common~~day-to-day ~~stock~~operations asand ~~compared~~consume ~~to other securities~~resources.

Shareholders may be diluted significantly through our efforts to obtain financing or complete acquisitions through the issuance of additional shares of our common stock or limited partnership units of the Operating Partnership, which are redeemable for shares of our common stock.-24-

WeTable ~~are authorized to issue up to (1) 90,000,000 shares~~ of common stock and (2) 10,000,000 shares of preferred stock. Our board of directors has the authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock and preferred stock with various preferences and other rights. Additionally, the limited partnership units of the Operating Partnership are redeemable for shares of our common stock, and we, as the sole general partner, are authorized to issue additional interests in the Operating Partnership in the form of such units. Moving forward, we may attempt to conduct acquisitions and/or mergers of other entities or assets using our common stock or limited partnership units of the Operating Partnership as payment for such transactions. If such transactions occur, this may result in substantial dilution of the ownership interests of existing shareholders, and dilute the book value of our common stock.Contents

26We are an “emerging growth company,” under federal securities laws and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

~~The~~We ~~Over-~~are an “emerging growth company,” as defined in the~~-Counter~~ ~~Bulletin~~JOBS ~~Board~~Act. isFor aas ~~quotation~~long ~~system,~~as ~~not~~we continue to be an ~~issuer~~emerging ~~listing~~growth ~~service~~company, ~~market~~we ormay ~~exchange.~~take ~~Therefore~~advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, ~~buying~~including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and ~~selling~~proxy ~~stock~~statements onand exemptions from the ~~OTC~~requirements of ~~Bulletin~~holding ~~Board~~a isnonbinding ~~not~~advisory asvote ~~efficient~~on asexecutive ~~buying~~compensation and ~~selling~~shareholder ~~stock~~approval ~~through~~of any golden parachute payments not previously approved. The JOBS Act also permits emerging growth companies to take advantage of an ~~exchange~~extended transition period to comply with new or revised accounting standards applicable to U.S. public companies. We are electing to use the extended transition period for complying with these new or revised accounting standards. As a result, itour financial statements may not be ~~difficult~~comparable to those of companies that comply with public company effective dates. We could be an emerging growth company for ~~you~~up to ~~sell~~five ~~your~~years after our first sale of equity securities pursuant to an effective registration statement under the Securities Act, although we could lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value of our common stock orheld ~~you~~by ~~may~~non-affiliates ~~not~~exceeds $700 million as of any June 30 before that time, in which case we would no longer be ~~able~~an toemerging ~~sell~~growth ~~your~~company as of the following December 31. We cannot predict if investors will find our common stock ~~for~~less anattractive ~~optimum~~because ~~trading~~we ~~price~~may rely on these exemptions.

~~Our~~We ~~common~~have ~~stock~~not isestablished ~~quoted on the Over the Counter Bulletin Board (the “OTCBB”). The OTCBB is~~ a ~~regulated~~minimum ~~quotation~~distribution ~~service~~payment level ~~that displays real-time quotes, last sale prices~~ and ~~volume~~we ~~limitations in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such securities~~ cannot beassure ~~guaranteed.~~you ~~In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure~~ of aour ~~limit~~ability ~~order~~ to ~~execute~~pay ordistributions ~~the~~in ~~execution of a market order at a significantly different price. Execution of trades, execution reporting and~~ the ~~delivery of legal trade confirmations may be delayed significantly~~future. ~~Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.~~

~~When~~We ~~fewer~~will ~~shares~~be ofgenerally arequired ~~security~~to ~~are~~distribute to ~~being~~our ~~traded~~shareholders onat ~~the~~least ~~OTCBB,~~90% ~~volatility~~ of ~~prices~~our ~~may~~taxable ~~increase~~income ~~and~~each ~~price~~year ~~movement~~for ~~may~~us ~~outpace~~to ~~the~~qualify ~~ability~~as toa ~~deliver~~REIT ~~accurate~~under ~~quote~~the ~~information.~~Internal ~~Lower~~Revenue ~~trading~~Code, ~~volumes~~or the inCode, afor ~~security~~which ~~may~~we ~~result~~currently indo anot ~~lower~~qualify. ~~likelihood~~We ofhave annot ~~individual’s~~established ~~orders~~a ~~being~~minimum ~~executed,~~distribution payment level and ~~current~~our ~~prices~~ability to pay distributions may ~~differ~~be ~~significantly~~adversely ~~from~~affected ~~the~~by ~~price~~a ~~one~~number ~~was~~of ~~quoted~~factors, byincluding the ~~OTCBB~~risk factors described herein. All distributions will be made at the ~~time~~discretion of ~~the~~our ~~order~~board ~~entry.~~of ~~Orders~~directors ~~for~~and ~~OTCBB~~will ~~securities~~depend ~~may~~on beour ~~canceled~~earnings, orfinancial ~~edited~~condition, ~~like~~maintenance ~~orders~~of ~~for~~our REIT ~~other~~qualification ~~securities.~~and ~~All~~other ~~requests~~factors tothat ~~change~~our orboard ~~cancel~~of andirectors ~~order~~may ~~must~~deem berelevant ~~submitted~~from time to, ~~received~~time. ~~and~~As ~~processed~~a byresult, ~~the~~no ~~OTCBB.~~assurance can ~~Due~~be togiven ~~the~~that ~~manual~~we ~~order~~will ~~processing~~be ~~involved~~able into ~~handling~~make ~~OTCBB~~distributions ~~trades,~~to ~~order~~our ~~processing~~shareholders ~~and~~at ~~reporting~~any ~~may~~time beor ~~delayed,~~that ~~and~~the anlevel ~~individual~~of ~~may~~any ~~not~~distributions will beachieve ~~able~~any tospecific ~~cancel~~market yield or ~~edit~~will anincrease ~~order.~~or ~~Consequently,~~be ~~one~~maintained ~~may~~over ~~not~~time. beAny ~~able~~failure to ~~sell~~achieve ~~shares~~expected ofdistributions could ~~common~~materially ~~stock~~and atadversely affect the ~~optimum~~price ~~trading~~of ~~prices~~our common stock.

~~The~~We ~~dealer’s spread (the difference between the bid and ask prices)~~ may beemploy ~~large~~leverage ~~and may result~~ in ~~substantial losses to~~ the ~~seller~~future ofwhich ~~securities~~could onexpose us ~~the~~to ~~OTCBB~~additional ~~if the common stock or other security must be sold immediately. Further~~risks, ~~purchasers of securities~~ may ~~incur~~impair anour ~~immediate~~ability ~~“paper” loss due~~ to ~~the~~pay ~~price~~dividends ~~spread.~~and ~~Moreover,~~may ~~dealers~~adversely ~~trading~~affect on the ~~OTCBB~~market ~~may not have a bid~~ price ~~for~~of ~~securities~~our ~~bought~~common ~~and sold through the OTCBB~~stock. ~~Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.~~

WeIf ~~expect~~we ~~volatility~~incur indebtedness in the ~~price~~future to offund our ~~common~~growth ~~stock~~or operations, ~~which~~it is likely that the instruments governing such indebtedness will contain covenants restricting our operating flexibility. We may ~~subject~~incur usdebt tothat ~~securities~~is ~~litigation~~secured ~~resulting~~by all or a portion of the properties in ~~substantial~~our portfolio. We will bear the costs and ~~liabilities~~fees associated with any such occurrence and ~~diverting~~ongoing ~~management’s~~interest ~~attention~~expense that will reduce the amount of funds available to common shareholders. Because our decision to issue debt will depend on market conditions and ~~resources~~other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future occurrence and any such occurrence could reduce the market price of our common stock.

~~The~~Certain ~~market~~provisions ~~for~~of our ~~common~~articles ~~stock~~ may bemake ~~characterized~~a bytakeover difficult ~~significant~~even ~~price~~if ~~volatility~~such ~~when~~takeover ~~compared~~could ~~to seasoned issuers, and we expect that our share price will~~ be ~~more~~beneficial ~~volatile~~to ~~than~~some ~~a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods~~ of volatility in the market price of its securities. We may in the future be a target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention from our ~~day-to-day operations and consume resources, such as cash~~shareholders.

27Our articles of incorporation authorize the issuance of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. Accordingly, our board is empowered, without further shareholder action, to issue shares or series of preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights, including the ability to receive dividends, of our common shareholders. The issuance of such preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control. Although we have no present intention of issuing any shares or series of preferred stock, we cannot guarantee that we will not make such an issuance in the future.

We are an “emerging growth company,” under federal securities laws and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.-25-

WeTable ~~are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage~~ of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. The JOBS Act also permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to U.S. public companies. We are electing to use the extended transition period for complying with these new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates. We could be an emerging growth company for up to five years after our first sale of equity securities pursuant to an effective registration statement under the Securities Act, although we could lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.Contents

WeA ~~have~~significant ~~not~~portion ~~established~~of aour ~~minimum~~shares ~~distribution~~are ~~payment~~subject ~~level~~to resale ~~and~~restrictions. weThis ~~cannot~~could ~~assure~~cause ~~you~~low oftrading ~~our~~volume ~~ability~~and toliquidity ~~pay~~of ~~distributions~~our incommon stock for the near future.

WeAll ~~will~~17,265,981 beof ~~generally~~the ~~required~~shares toof ~~distribute to~~ our ~~shareholders~~common stock atoutstanding ~~least~~as ~~90%~~ of ~~our~~December ~~taxable~~31, ~~income~~2016 ~~each~~including ~~year~~86,000 ~~for~~of ussuch toshares ~~qualify~~issued asin arestricted ~~REIT~~stock ~~under~~grants ~~the~~to ~~Internal~~our ~~Revenue~~executive ~~Code,~~officers and ordirectors ~~the~~were ~~Code,~~subject ~~for~~to ~~which~~resale werestrictions ~~currently~~as doa ~~not~~result ~~qualify.~~of Wesecurities ~~have~~laws ~~not~~(including ~~established~~Rule a144 ~~minimum~~of ~~distribution~~the ~~payment~~Securities ~~level~~Act) ~~and~~or lock-up ~~our~~agreement ~~ability~~at toissuance. ~~pay~~As ~~distributions~~of ~~may~~December be31, ~~adversely~~2016, ~~affected~~9.2 bymillion aunits ~~number~~ of ~~factors, including~~ the ~~risk~~Operating ~~factors~~Partnership ~~described~~are ~~herein.~~exchangeable ~~All distributions will be made~~ at the Company’s discretion, offor ~~our~~common ~~board~~shares of ~~directors~~stock ~~and will depend~~ on ~~our~~a ~~earnings,~~one-for-one ~~financial condition~~basis, ~~maintenance~~are ofsubject ~~our~~to ~~REIT~~such ~~qualification~~resale ~~and~~restrictions. ~~other~~Because many ~~factors~~of ~~that~~ our ~~board~~shares ofare ~~directors~~still ~~may~~subject ~~deem relevant from time~~ to ~~time.~~resale ~~As a result~~restrictions, nothere ~~assurance~~may ~~can~~ be ~~given~~limited ~~that~~liquidity weand ~~will~~trading bevolume ~~able~~of toour ~~make~~common ~~distributions~~stock, which tomay ~~our~~lead ~~shareholders~~to atincreased ~~any~~transaction ~~time~~costs orfor ~~that~~sales ~~the~~and ~~level~~purchases of ~~any~~our ~~distributions~~common ~~will~~stock ~~achieve~~as ~~any~~compared ~~specific market yield or will increase or be maintained over time. Any failure~~ to ~~achieve~~other ~~expected~~securities ~~distributions could materially~~ and ~~adversely~~the possible ~~affect~~inability ~~the~~to ~~price~~identify ofa ~~our~~buyer ~~common~~for ~~stock~~your shares.

WeCertain ~~may~~of ~~employ~~our ~~leverage~~officers inand ~~the~~directors ~~future~~have ~~which~~sufficient voting ~~could~~power ~~expose us~~ to ~~additional~~make ~~risks,~~corporate ~~may~~governance ~~impair~~decisions ~~our~~that ~~ability~~could tohave ~~pay~~a ~~dividends~~significant ~~and~~effect ~~may~~on ~~adversely~~us ~~affect~~and the ~~market~~other ~~price of our common stock~~shareholders.

IfMG weKaminski, ~~incur indebtedness in the future to fund~~ our ~~growth~~Chief orExecutive ~~operations~~Officer, beneficially itowns isapproximately ~~likely~~49% ~~that~~of ~~the~~our ~~instruments~~outstanding ~~governing~~common ~~such~~stock ~~indebtedness~~on ~~will~~a ~~contain~~fully ~~covenants~~diluted ~~restricting our operating flexibility~~basis. WeAs ~~may~~a ~~incur~~result, ~~debt~~Mr. ~~that~~Kaminski, isalone will ~~secured~~be byable ~~all~~to orexert a ~~portion~~significant degree of ~~the~~influence ~~properties~~over in our ~~portfolio.~~management Weand ~~will~~affairs ~~bear~~and ~~the~~over ~~costs~~matters ~~and~~requiring ~~fees~~shareholder approval, ~~associated~~including ~~with~~the ~~any~~election ~~such~~of ~~incurrence~~directors and ~~ongoing~~approval ~~interest~~of ~~expense~~significant ~~that~~corporate ~~will~~transactions. ~~reduce~~In ~~the~~addition, ~~amount~~this concentration of ~~funds~~ownership ~~available~~may todelay ~~common~~or ~~shareholders.~~prevent ~~Because~~a ~~our~~change ~~decision~~in toour ~~issue~~control ~~debt~~and ~~will~~might ~~depend~~affect onthe market ~~conditions~~price ~~and~~of ~~other~~our ~~factors~~common ~~beyond~~stock, ~~our~~even ~~control,~~when wea ~~cannot~~change in ~~predict~~control ormay ~~estimate~~be in the ~~amount,~~best ~~timing~~interest orof ~~nature~~all stockholders. Furthermore, the interests of ~~our~~this ~~future~~concentration ~~incurrence~~of ~~and~~ownership ~~any~~may ~~such~~not always ~~incurrence~~coincide ~~could~~with ~~reduce~~our ~~the~~interests ~~market~~or ~~price~~the interests of ~~our~~other ~~common stock~~shareholders.

28INTERNATIONAL RISKS

~~Certain~~The ~~provisions~~risks of doing ~~our~~business ~~articles~~internationally ~~may~~could ~~make~~lead ato ~~takeover~~revenue ~~difficult~~decreases, ~~even~~cost ifincreases, ~~such~~profit ~~takeover~~reductions, ~~could~~or bedisruptions ~~beneficial to some~~ of ~~our shareholders~~business.

~~Our~~The economic ~~articles~~and ofpolitical ~~incorporation~~environments ~~authorize~~in ~~the~~which ~~issuance~~we ofdo ~~“blank~~business ~~check”~~internationally ~~preferred~~subject ~~stock~~us ~~with~~to ~~such~~risk ~~designations, rights and preferences~~ as ~~may~~a beresult ~~determined~~of ~~from~~economic ~~time~~uncertainties, terrorist tothreats, ~~time~~travel-security bymeasures, ~~our~~ownership ~~board of directors. Accordingly~~restrictions, ~~our~~competition ~~board is empowered~~laws, ~~without~~currency ~~further~~regulation ~~shareholder~~and ~~action~~fluctuation, tochanges in ~~issue~~governments ~~shares~~and orgovernment ~~series~~policies, ofcivil ~~preferred~~and ~~stock~~political ~~with dividend~~unrest, ~~liquidation,~~and ~~conversion,~~a ~~voting~~range orof ~~other~~additional ~~rights~~factors that ~~could~~may adversely affect our ~~the~~revenues, ~~voting~~costs, ~~power or other rights~~operations, ~~including the ability to receive dividends~~reputation, ofand ~~our common shareholders~~profits. The ~~issuance~~risk offactors ~~such~~involved ~~preferred~~in ~~stock~~doing ~~could~~business ~~be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change~~ in ~~control.~~countries ~~Although~~outside wethe United ~~have~~States ~~no present intention of issuing any shares or series of preferred stock~~include, webut ~~cannot~~are ~~guarantee that we will~~ not ~~make~~limited ~~such~~to, ~~an issuance in~~ the ~~future.~~following:

A· ~~significant~~sudden ~~portion~~changes ofin ~~our~~government, ~~shares~~economic, ~~are~~or ~~subject~~political topolicy; ~~resale~~political ~~restrictions.~~and ~~This~~civil ~~could~~unrest; ~~cause~~acts ~~low trading volume and liquidity~~ of ~~our~~terrorism; ~~common~~international ~~stock~~boycotts; ~~for~~and ~~the~~U.S. ~~near~~anti-boycott ~~future.~~legislation

~~All~~· 17,057,680 of the shares of our common stock outstanding as of December 31, 2015 including 1,135,458 of such shares issued in restricted stock grants to our executive officers and directors were subject to resale restrictions as a result of securities laws (including Rule 144 of the Securities Act) or lockanti-upAmerican ~~agreement~~sentiment at issuance. As of December 31, 2015, 9.2 million shares of our common stock are subject to such resale restrictions. Because many of our shares are still subject to resale restrictions, there may be limited liquidity and trading volume of our common stock, which may lead to increased transaction costs for sales and purchases of our common stock as compared to other securities and the possible inability to identify a buyer for your shares.abroad

~~Certain~~· ofeconomic ~~our~~instability ~~officers~~in ~~and~~international ~~directors have sufficient voting power to make corporate governance decisions that could have a significant effect on us and the other shareholders.~~ markets

MG· ~~Kaminski,~~changes ~~our~~in ~~Chief~~the ~~Executive~~exchange ~~Officer,~~rate ~~beneficially owns approximately 49%~~ of ~~our~~foreign ~~outstanding common stock on a fully diluted basis. As a result~~currencies, ~~Mr.~~currency ~~Kaminski~~restructurings, ~~alone will be able to exert a significant degree of influence over our management and affairs and over matters requiring shareholder approval~~hyperinflation, ~~including the election of directors~~ and ~~approval~~deflation ~~of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change~~ in ~~our~~markets ~~control and might affect the market price of our common stock, even when a change~~ in ~~control~~which ~~may~~we bedo ~~in the best interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide with our interests or the interests of other shareholders.~~business

~~RISKS~~· ~~RELATED~~disruptions TOas ~~OUR~~a ~~ORGANIZATIONAL~~result ~~STRUCTURE~~of weather, natural disasters, and outbreak of disease

~~Conflicts~~· ~~exist~~other orevents ~~could~~affecting ~~arise in~~ the ~~future~~desirability ~~between~~or ~~the~~difficulty ~~interests~~ of ~~our~~traveling ~~shareholders~~to ~~and~~a ~~the~~particular ~~interests of the holders of limited partnership units in our Operating Partnership, which may impede business decisions that could benefit our shareholders.~~region

~~Conflicts~~· ofbusiness ~~interest~~corruption ~~exist or could arise~~ in ~~the~~international ~~future~~markets ~~as a result of the relationships between us~~ and ~~our affiliates, on~~ the ~~one~~effects ~~hand, and our Operating Partnership or any partner thereof, the other. Our directors and officers have duties to our company under applicable Minnesota law in connection with their management~~ of ~~our~~anticorruption company. At the same time, we, as the general partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership in connection with the management of our Operating Partnership and its limited partners under Minnesota law and the partnership agreement of our Operating Partnership. Our fiduciary duties and obligations as general partner to our Operating Partnership and its partners may come into conflict with the duties of our directors and officers to our company. If we become subject to and are unable to resolve any conflicts of interests, our business and results of operations could be materially and adversely impacted.laws

29· restrictions affecting currency conversion, the transfer of funds, and the repatriation of earnings from outside the United States

~~The~~· ~~partnership~~inflation, ~~agreement~~recession, ofinterest ~~our~~rate ~~Operating Partnership provides that neither we nor our directors and officers are liable to our Operating Partnership for losses sustained~~fluctuations, ~~liabilities~~political ~~incurred or benefits not derived as a result of any act or omission~~conflicts, ~~so long as such person acted in good faith~~ and inother ~~the~~sources ~~belief that such conduct or omission was in the best interests~~ of ~~our~~instability ~~Operating Partnership. The partnership agreement provides for indemnification of us, our affiliates~~ and ~~each~~change ofaffecting ~~our respective officers and directors to~~ the ~~extent~~economic those persons would be indemnified by us pursuant to our articles of incorporation if such persons were directors, officers, agents or employees of our company. The provisions of Minnesota law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and wepolitical ~~have~~conditions ~~not obtained an opinion of counsel covering the provisions set forth in the partnership agreement~~ that ~~purport~~exist ~~to waive or restrict our fiduciary duties that would be~~ in ~~effect under common law were it not for the partnership agreement. As~~ a ~~result,~~particular our shareholders may have limited rights against us in connection with addressing conflicts of interest, which could limit their recourse against us in the event of actions we take with which our shareholders do not agree.region

~~Our organizational documents may inhibit a takeover that shareholders consider favorable.~~-26-

~~Provisions~~Table of our articles of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests. These provisions:Contents

· potential adverse effects of Brexit

~~permit~~· ~~our~~local ~~board~~laws ofrelated ~~directors~~ to ~~issue~~intellectual upproperty ~~to 10,000,000 shares of preferred stock, with any~~ rights~~, privileges and preferences as our board may designate, including the right to approve an acquisition or other change in our control;~~

· forced nationalization of our properties by local governments

~~provide~~· ~~that~~inadvertent ~~the~~failure ~~authorized~~to ~~number~~comply ofwith ~~directors~~laws ~~may~~regulating beour ~~changed~~international byoperations, anincluding, ~~amendment~~but not limited to, ~~our~~FCPA ~~bylaws~~restrictions, trade sanctions admininstered by ~~our~~the ~~board~~OFCA, and laws and regulations of ~~directors;~~other international jurisdictions

·CURRENCY RISKS

~~permit~~Our expenses and revenues are affected by the ~~division~~foreign ofcurrencies with which we conduct business internationally. Exchange-rate fluctuation may significantly affect our revenues ~~board~~and costs. Changes in exchange rates between U.S. dollars and the foreign currencies affect the recording of ~~directors~~our ~~into~~foreign assets, upliabilities, toand ~~three~~income ~~classes;~~and may adversely affect our financial outcomes.

·Although the risks of exposure to foreign currencies may be reduced by entering into foreign exchange derivitives with financial institutions to stabilize future exchange rates, the risk-reducing effects of such derivitives are limited, and they themselves introduce additional costs and risks.

~~provide~~HOSPITALITY that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; andRISKS

·As the hospitality industry is seasonal, our revenues vary by season, depending on the location in which they operate and the client base they serve.

doOther ~~not~~risk ~~provide~~factors ~~for~~involved ~~cumulative~~in ~~voting~~doing ~~rights.~~business in the hospitality industry include, but are not limited to, the following:

~~Also,~~· tocompetition ~~assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, we intend to amend our articles to prohibit any stockholder~~ from ~~beneficially~~similar orbusinesses ~~constructively~~within owning more than 10% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 10% by value or number of shares, whichever is more restrictive, of our outstanding capital stock. Only our board of directors, in its sole discretion, may waive the ~~10%~~hospitality ~~ownership limit with respect to a particular stockholder.~~industry

~~Our~~· ~~board~~fluctuation ofin ~~directors~~costs ~~and~~associated ~~management~~with ~~team~~employee ~~may~~compensation ~~change our investment~~ and ~~financing~~benefits, ~~policies~~food ~~without shareholder approval~~ and webeverage, ~~may become more highly leveraged~~insurance, ~~which~~and ~~may increase our risk of default under our debt obligations.~~utilities

~~Our~~· ~~investment~~fluctuations and financing policies are exclusively determined by our board of directors and management team. Accordingly, our shareholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter our policy on borrowing at any time without shareholder approval and we could become more highly leveraged, which could result in angovernment ~~increase~~regulations in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and ~~liquidity risk. Changes to our policies with regards to the foregoing could adversely affect our financial condition, results of operations, cash flow and the trading price of our common stock.~~taxation

30· costs, which vary by location, incurred in association with applicable laws and regulations, cultural practices, local customs, governmental regulation, employee health-care coverage, and labor

We· ~~are a holding company with no direct operations and, as such, we will rely on funds received from our Operating Partnership to pay liabilities, and~~ the ~~interests~~success of ~~our~~the ~~shareholders~~travel ~~will~~intermediaries bewith ~~structurally~~whom ~~subordinated~~we todo ~~all~~business ~~liabilities~~in ~~and~~securing ~~obligations~~patrons offor our ~~Operating Partnership and its subsidiaries.~~businesses

We· are a holding company and will conduct substantially all of our operations through our Operating Partnership. We do not have, apart from an interest in our Operating Partnership, any independent operations. As a result, we will rely on distributions from our Operating Partnership to pay any dividends we might declare on shares of our common stock. We will also rely on distributions from our Operating Partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from our Operating Partnership. In addition, because we are a holding company, your claims as shareholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its subsidiaries. Therefore, in the ~~event~~services ofprovided ~~our~~by ~~bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be available to satisfy~~ the ~~claims~~franchisees ofwith ~~our~~which ~~shareholders~~we ~~only~~do ~~after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.~~business

If· wethe ~~elect~~availability toof benecessary ~~taxed~~capital asto acover ~~REIT~~investments, ~~dividends~~expenses, ~~payable~~and ~~by REITs do not qualify for the reduced tax rates available for some dividends.~~debts

~~The~~· ~~maximum~~changes ~~tax~~in ~~rate~~the ~~applicable~~markets toin ~~income~~which ~~from~~we ~~“qualified~~operate ~~dividends” payable to U.S. shareholders that are individuals, trusts~~ and ~~estates is 15% (20%~~ in the ~~case~~supply ofand ~~taxpayers~~demand ~~whose income exceeds certain thresholds). Dividends payable by REITs, however, are not eligible for the reduced rates. Although these rules do not adversely affect the taxation~~ of ~~REITs~~products ~~or dividends payable by REITs, investors who are individuals, trusts~~ and ~~estates~~services ~~may perceive investments~~ in ~~REITs to be relatively less attractive than investments in~~ the ~~stocks~~hospitality ~~of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the per share trading price of our common stock.~~industry

~~Our~~· ~~Operating~~changes ~~Partnership may issue additional partnership interests to third parties without the consent of our shareholders, which would reduce our ownership percentage~~ in ~~our~~business ~~Operating~~travel ~~Partnership~~as ~~and~~result ~~may have a dilutive effect on the amount~~ of ~~distributions~~alternative ~~made~~methods ~~to us by our Operating Partnership and, therefore, the amount~~ of ~~distributions~~conducting welong-distance ~~can make to our shareholders.~~business

In· ~~connection~~fluctuations ~~with~~in ~~future~~the ~~acquisitions~~cost of ~~properties~~travel ~~or otherwise, we expect to issue additional partnership interests to third parties. Such issuances will reduce our ownership percentage in our Operating Partnership~~ and ~~may affect~~ the ~~amount~~emergence of ~~distributions~~recreational ~~made~~and tobusiness usalternatives byin ~~our~~the ~~Operating~~products ~~Partnership~~ and, ~~therefore,~~services ~~the amount of distributions~~ we can make to our shareholders. Because you will not directly own partnership interests, you will not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.provide

~~Item~~· ~~1B.~~fluctuations and disruptions with regard to available labor

~~Unresolved Staff Comments~~-27-

~~None.~~Table of Contents

~~Item~~RISKS 2.RELATED TO OUR ORGANIZATIONAL STRUCTURE

~~Properties~~Conflicts exist or could arise in the future between the interests of our shareholders and the interests of the holders of limited partnership units in our Operating Partnership, which may impede business decisions that could benefit our shareholders.

~~The~~Conflicts ~~information~~of ~~set~~interest ~~forth~~exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our Operating Partnership or any partner thereof, the other. Our directors and officers have duties to our company under ~~Item~~applicable 1Minnesota ~~“Business~~law –in connection with their management of our company. At the same time, we, as the general partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership in connection with the management of our Operating Partnership and its limited partners under Minnesota law and the partnership agreement of our Operating Partnership. Our ~~Current~~fiduciary ~~Property~~duties ~~Interests”~~and isobligations ~~incorporated~~as general ~~herein~~partner byto ~~reference~~our Operating Partnership and its partners may come into conflict with the duties of our directors and officers to our company. If we become subject to and are unable to resolve any conflicts of interests, our business and results of operations could be materially and adversely impacted.

~~Item~~The 3partnership agreement of our Operating Partnership provides that neither we nor our directors and officers are liable to our Operating Partnership for losses sustained, liabilities incurred or benefits not derived as a result of any act or omission, so long as such person acted in good faith and in the belief that such conduct or omission was in the best interests of our Operating Partnership. The partnership agreement provides for indemnification of us, our affiliates and each of our respective officers and directors to the extent those persons would be indemnified by us pursuant to our articles of incorporation if such persons were directors, officers, agents or employees of our company. The provisions of Minnesota law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties that would be in effect under common law were it not for the partnership agreement. As a result, our shareholders may have limited rights against us in connection with addressing conflicts of interest, which could limit their recourse against us in the event of actions we take with which our shareholders do not agree.

~~Legal~~Our ~~Proceedings~~organizational documents may inhibit a takeover that shareholders consider favorable.

~~None~~Provisions of our articles of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests. These provisions:

~~Item~~· 4.permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, privileges and preferences as our board may designate, including the right to approve an acquisition or other change in our control;

~~Mine~~· ~~Safety~~provide ~~Disclosures~~that the authorized number of directors may be changed by an amendment to our bylaws by our board of directors;

~~Not~~· ~~applicable.~~permit the division of our board of directors into up to three classes;

31· provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; and

~~PART~~· IIdo not provide for cumulative voting rights.

~~Item~~Also, 5to assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, we intend to amend our articles to prohibit any stockholder from beneficially or constructively owning more than 10% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 10% by value or number of shares, whichever is more restrictive, of our outstanding capital stock. Only our board of directors, in its sole discretion, may waive the 10% ownership limit with respect to a particular stockholder.

~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~-28-

~~Market~~Table ~~Information~~of Contents

~~The common stock of our predecessor, Guide Holdings, Inc., was listed for quotations on the OTCBB on December 28, 2010, under the symbol “GHGD.”~~ Our ~~shares~~board of ~~common~~directors ~~stock~~and ~~continued~~management toteam bemay ~~quoted on the OTCBB subsequent to June 7, 2013 under the symbol “TALR.” There currently is no established trading market for shares of~~ change our ~~common~~investment ~~stock.~~and Wefinancing ~~cannot~~policies ~~give~~without ~~any~~shareholder ~~assurance~~approval ~~that~~and ~~any~~we market for our common stock will develop or be maintained. If an established trading market ever develops in the future, the sale of shares of our common stock that are deemed to be “restricted securities” pursuant to Rule 144 under the Securities Act of 1933, as amended, by members of management or others may ~~have~~become amore ~~substantial~~highly ~~adverse impact on any such market. In general~~leveraged, ~~pursuant~~which ~~to Rule 144, non-affiliate stockholders~~ may ~~sell~~increase our ~~freely~~risk ~~after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner~~ of ~~sale~~default ~~(for~~under ~~equity securities), current public information, and notice requirements. All current holders of shares of~~ our ~~common~~debt ~~stock have satisfied the six-month holding period requirement of Rule 144~~obligations.

~~The~~Our ~~following~~investment ~~table~~and ~~sets~~financing ~~forth~~policies are exclusively determined by our board of directors and management team. Accordingly, ~~for~~our ~~the~~shareholders ~~periods~~do ~~indicated~~not ~~over~~control these policies. Further, our organizational documents do not limit the ~~last~~amount ~~two~~or ~~years~~percentage of indebtedness, ~~the~~funded ~~high~~or ~~and~~otherwise, ~~low~~that ~~prices~~we may incur. Our board of ~~actual~~directors ~~transactions~~may alter our policy on ~~the~~borrowing ~~OTCBB~~at ~~instead~~any oftime ~~bid~~without shareholder approval and ~~ask~~we ~~quotations~~could ~~due~~become tomore ~~limited~~highly leveraged, ~~trading~~which ~~volume~~could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the ~~event~~manner ~~there~~in ~~were~~which nowe ~~shares~~allocate ~~traded~~our ~~during~~resources across our portfolio or the ~~period~~types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regards to the ~~last~~foregoing ~~actual~~could ~~transaction~~adversely ~~price~~affect ~~from~~our afinancial ~~previous~~condition, ~~period~~results of ~~was~~operations, ~~used~~cash flow and the trading price of our common stock.

	Closing Bid
	High	Low
2014
January 1 - March 31, 2014	2.00	2.00
April 1 - June 30, 2014	2.00	1.25
July 1 - September 30, 2014	1.01	1.01
October 1 - December 31, 2014	1.01	1.01
2015
January 1 - March 31, 2015	1.80	1.75
April 1 - June 30, 2015	1.80	1.75
July 1 - September 30, 2015	1.50	0.81
October 1 - December 31, 2015	1.35	1.35

We are a holding company with no direct operations and, as such, we will rely on funds received from our Operating Partnership to pay liabilities, and the interests of our shareholders will be structurally subordinated to all liabilities and obligations of our Operating Partnership and its subsidiaries.

~~These~~We ~~prices~~are ~~were~~a ~~obtained~~holding company and will conduct substantially all of our operations through our Operating Partnership. We do not have, apart from ~~Bloomberg~~an ~~Finance~~interest in our Operating Partnership, Lany independent operations.P As a result, we will rely on distributions from our Operating Partnership to pay any dividends we might declare on shares of our common stock. We will also rely on distributions from our Operating Partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from our Operating Partnership. In addition, because we are a holding company, your claims as shareholders will be structurally subordinated to all existing and dofuture liabilities and obligations (whether or not ~~necessarily~~for ~~reflect~~borrowed ~~actual~~money) ~~transactions,~~of ~~retail~~our ~~markups~~Operating Partnership and its subsidiaries. Therefore, ~~mark~~in ~~downs~~the event of our bankruptcy, liquidation or ~~commissions~~reorganization, our assets and those of our Operating Partnership and its subsidiaries will be available to satisfy the claims of our shareholders only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

~~Stockholders~~If ~~of Record. As of December 31, 2015,~~ we ~~had~~elect ~~over~~to ~~100~~be ~~stockholders~~taxed ofas ~~record~~a ~~of our common stock~~REIT, ~~excluding~~dividends ~~holders~~payable by ~~whose~~REITs ~~stock~~do isnot ~~held~~qualify ~~either~~for inthe ~~nominee~~reduced ~~name~~tax ~~and/or~~rates ~~street~~available ~~name~~for ~~brokerage~~some ~~accounts~~dividends.

~~Dividends. Our~~The ~~predecessor~~maximum ~~did~~tax ~~not~~rate ~~declare~~applicable ~~any~~to ~~cash~~income from “qualified dividends” ~~and~~payable weto ~~have~~U.S. ~~not~~shareholders ~~declared~~that ~~any~~are ~~cash~~individuals, ~~dividend~~trusts ~~subsequent~~and toestates ~~June~~is 7,15% ~~2013.~~(20% Wein ~~intend~~the case toof ~~elect~~taxpayers towhose beincome ~~taxed~~exceeds ascertain athresholds). ~~REIT~~Dividends ~~for~~payable ~~federal~~by ~~income~~REITs, ~~tax~~however, ~~purposes~~are nonot ~~earlier~~eligible ~~than~~for ~~with~~the ~~our~~reduced rates. ~~taxable~~Although ~~year~~these ~~ending~~rules ~~December~~do ~~31,~~not ~~2016.~~adversely Inaffect ~~connection~~the ~~with~~taxation ~~electing~~of toREITs beor ~~taxed~~dividends topayable ~~qualify~~by asREITs, ainvestors ~~REIT~~who are individuals, trusts ~~each~~and ~~year~~estates wemay ~~must~~perceive ~~distribute~~investments ~~dividends,~~in ~~other~~REITs ~~than~~to ~~capital~~be ~~gain~~relatively ~~dividends~~less ~~and~~attractive ~~deemed~~than ~~distributions~~investments in the stocks of ~~retained~~non-REIT corporations ~~capital~~that ~~gain~~pay dividends, towhich ~~our~~could ~~shareholders~~adversely inaffect anthe ~~aggregate~~value ~~amount~~of atthe ~~least~~shares ~~equal~~of toREITs, including the ~~sum~~per share trading price of: our common stock.

·Our Operating Partnership may issue additional partnership interests to third parties without the consent of our shareholders, which would reduce our ownership percentage in our Operating Partnership and may have a dilutive effect on the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our shareholders.

~~90%~~In ofconnection ~~our~~with ~~“REIT~~future ~~taxable~~acquisitions of ~~income~~properties or otherwise,” ~~computed~~we ~~without~~expect ~~regard~~to issue additional partnership interests to third parties. Such issuances will reduce our ownership percentage in our Operating Partnership and may affect the ~~dividends~~amount ~~paid~~of ~~deduction~~distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our ~~net~~shareholders. ~~capital~~Because ~~gain~~you orwill ~~loss~~not directly own partnership interests, you ~~and~~will not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.

·-29-

~~90%~~Table of ~~our after-tax net income, if any, from foreclosure property, minus~~Contents

·In order to elect to be taxed as a REIT, we may seek to be amend provisions of our articles of incorporation, which requires shareholder approval. We may not be able to receive that shareholder approval.

~~the~~In ~~sum~~order ofto elect to be taxed as REIT, we would likely seek to make certain ~~items~~amendments to our articles of ~~non-cash~~incorporation. Under Utah law, those amendments require shareholder approval. We may not be able to obtain the necessary approvals or, the cost of seek the approvals, may be too costly and prohibit us from seeking the approvals. In such instance, we would not elect to be taxed as a REIT and the taxable income to our shareholders may be higher.

32Item 1B. Unresolved Staff Comments

If we elect to be taxed as a REIT, we must pay such distributions in the taxable year to which they relate, or in the following taxable year if either (i) we declare the distribution before we timely file our federal income tax return for the year and pay the distribution on or before the first regular dividend payment date after such declaration or (ii) we declare the distribution in October, November or December of the taxable year, payable to shareholders of record on a specified day in any such month, and we actually pay the dividend before the end of January of the following yearNone. The distributions under clause (i) are taxable to the shareholders in the year in which paid, and the distributions in clause (ii) are treated as paid on December 31st of the prior taxable year. In both instances, these distributions relate to our prior taxable year for purposes of the 90% distribution requirement.

IfItem ~~we elect to be taxed as a REIT, we will pay federal income tax on taxable income, including net capital gain, that we do not distribute to shareholders~~2. Furthermore, if we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year we will be taxed on, at least the sum of:Properties

·The information set forth under Item 1 “Business – Our Current Property Interests” is incorporated herein by reference.

~~85%~~Item of3. ~~our~~Legal ~~REIT ordinary income for such year,~~Proceedings

·All of the properties we own are subject to loan agreements requiring, among other covenants, compliance with certain financial and non-financial covenants. In the event we are unable to comply with the requirements of our borrowings, we may be subject to default, which could cause a lender to accelerate our indebtedness or to initiate a foreclosure action. Judgments against the borrower in excess of $100,000 or against the guarantors of our loans in excess of $250,000 that remain unpaid after 30 days constitute an event of default under our 10301 Bren Road loan agreements and judgments against the borrower or the guarantors of our loans in excess of $250,000 that remain unpaid after 60 days constitute and event of default under our 180 E 5th Street loan.

~~95%~~On February 27, 2017, a judgment in the amount of $719,365 was ordered against Talon Bren Road, LLC and Talon O.P. L.P. On March 27, 2017, Talon Bren Road, LLC received a notice of a default under the terms of our ~~REIT~~second ~~capital~~mortgage ~~gain~~agreement, ~~income~~the outstanding balance of which was $2.0 million as of December 31, 2016. On April 13, 2017, Talon Bren Road, LLC, Talon O.P. and Talon Real Estate Holding Corp. received a notice and acceleration of demand for ~~such~~payment ~~year~~of amounts outstanding under our first mortgage loan agreement, the balance of which was approximately $10.7 million as of December 31, 2016. On June 23, 2017 the amounts outstanding on the first and second mortgage were refinanced with a new lender and the judgment in the amount of $719,365 was satisfied out of the proceeds of the refinancing.

·On April 7, 2017, a judgment in the amount of $897,695 was ordered against Talon Real Estate Holding Company and Talon O.P. L.P, jointly and severally. On May 31, 2017, the Court granted a Charging Order against the Company and Talon O.P.L.P where the Company and Talon O.P.L.P are required to pay all profits and distributions to the plaintiff until the full amount of the judgment is paid and satisfied.

~~any~~Subsequent ~~undistributed~~to ~~taxable~~the ~~income~~judgment and ~~from~~charging ~~prior~~order, ~~periods~~in April 2018, the judgment was fully satisfied by the Company by granting a second mortgage in favor of the judgment creditor.

ItItem ~~is possible that we may not have sufficient cash to meet the distribution requirements discussed above~~4. ~~This~~Mine ~~could~~Safety result because of competing demands for funds, or because of timing differences between the actual receipt of income and actual payment of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. For example, we may not deduct recognized capital losses from our “REIT taxable income.” Further, it is possible that, from time to time, we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale. As a result of the foregoing, we may have less cash than is necessary to distribute taxable income sufficient to avoid corporate income tax and the excise tax imposed on certain undistributed income or even to meet the 90% distribution requirement. In such a situation, we may need to borrow funds, raise funds through the issuance of additional shares of common stock or, if possible, pay taxable dividends of our common stock or debt securities.Disclosures

~~Unregistered~~Not ~~Sales of Equity Securities~~applicable.

~~No private placement of the Company’s shares of common stock was completed in 2015.~~-30-

~~Stock~~Table ~~Repurchases~~of Contents

~~None.~~PART II

Item 65. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

~~Selected~~Market ~~Financial Data~~Information

~~Not~~The ~~required~~common stock of our predecessor, Guide Holdings, Inc., was listed for quotations on the OTCBB on December 28, 2010, under the symbol “GHGD.” Our shares of common stock continued to be quoted on the OTCBB subsequent to June 7, 2013 under the symbol “TALR.” There currently is no established trading market for shares of our common stock. We cannot give any assurance that any market for our common stock will develop or be maintained. If an established trading market ever develops in the future, the sale of shares of our common stock that are deemed to be “restricted securities” pursuant to Rule 144 under the Securities Act of 1933, as amended, by members of management or others may have a ~~Smaller~~substantial ~~Reporting~~adverse ~~Company~~impact on any such market. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. All current holders of shares of our common stock have satisfied the six-month holding period requirement of Rule 144.

33The following table sets forth, for the periods indicated over the last two years, the high and low prices of actual transactions on the OTCBB instead of bid and ask quotations due to limited trading volume. In the event there were no shares traded during the period, the last actual transaction price from a previous period was used.

Item 7.

	Closing Bid
	High	Low
2016
January 1 - March 31, 2016	1.35	1.00
April 1 - June 30, 2016	1.00	1.00
July 1 - September 30, 2016	1.00	0.55
October 1 - December 31, 2016	0.98	0.98

2015
January 1 - March 31, 2015	1.80	1.75
April 1 - June 30, 2015	1.80	1.75
July 1 - September 30, 2015	1.50	0.81
October 1 - December 31, 2015	1.35	1.35

~~Management’s~~These ~~Discussion~~prices ~~and~~were ~~Analysis~~obtained offrom ~~Financial~~Bloomberg Finance, ~~Condition~~L.P. and ~~Results~~do ofnot ~~Operations~~necessarily reflect actual transactions, retail markups, mark downs or commissions.

~~The~~Stockholders ~~following discussion and analysis~~ of ~~our~~Record. ~~financial~~As ~~condition and results~~ of ~~operations~~December 31, ~~should~~2016, bewe ~~read~~had ~~together~~over ~~with~~106 ~~our~~stockholders ~~audited~~of ~~financial~~record statements and related notes which are included elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of ~~certain~~our ~~factors,~~common ~~including~~stock, ~~but~~excluding ~~not~~holders ~~limited~~whose ~~to,~~stock ~~those~~is ~~discussed~~held ineither ~~“Risk Factors” included elsewhere~~ in ~~this~~nominee ~~Annual~~name and/or ~~Report~~street onname ~~Form~~brokerage ~~10-K~~accounts.

~~Overview~~Dividends. Our predecessor did not declare any cash dividends and we have not declared any cash dividend subsequent to June 7, 2013. We intend to elect to be taxed as a REIT for federal income tax purposes no earlier than with our taxable year ending December 31, 2018. In connection with electing to be taxed to qualify as a REIT, each year we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our shareholders in an aggregate amount at least equal to the sum of:

~~Talon~~· ~~Real~~90% ~~Estate~~of ~~Holding~~our ~~Corp~~“REIT istaxable ~~a publicly traded real estate corporation that invests primarily in single and multi-tenant office~~income,” ~~industrial~~computed ~~and~~without ~~retail~~regard ~~properties~~to ~~within~~ the ~~Midwest~~dividends ~~and~~paid ~~South~~deduction ~~Central regions of the United States. It currently owns four properties located in~~ and ~~around~~our ~~Minneapolis-St.~~net ~~Paul~~capital ~~metropolitan~~gain ~~area~~or ~~of Minnesota. Headquartered in Minneapolis~~loss, MN and ~~founded in June 2013, Talon’s primary objective is to provide shareholders with attractive returns from investments in real estate through dividend distribution and growth.~~

On· ~~June 7, 2013 we acquired a 49~~90% ~~interest in an entity that owns an industrial complex consisting~~ of ~~two~~our ~~buildings~~after-tax ~~with~~net ~~approximately 171~~income,~~639~~ ~~square~~if ~~feet located in the Minneapolis-St. Paul metropolitan area. We have entered into a contribution agreement to acquire the remaining interest in this entity~~any, ~~subject to receiving consent to the transfer~~ from ~~the~~foreclosure ~~entity’s~~property, ~~lender. The two buildings currently have a combined occupancy of 85%.~~minus

In· ~~2014, we completed two acquisitions totaling approximately $58 Million and over 1 million in gross building square feet. On May 29, 2014, we completed~~ the ~~acquisition~~sum of acertain ~~227,000~~items ~~square foot building situated on 20 acres~~ of ~~land~~non-cash ~~in Minnetonka, MN that was 100% leased by over 100 tenants who are wholesale distributors. This property contributes to our core stable~~ income ~~investment strategy~~. On July 2, 2014, we completed the acquisition of a thirteen-story office tower located in downtown St. Paul, MN totaling 856,223 total building square feet that was 62% occupied by corporate and government tenants at time of acquisition and is currently 62% occupied. Management acquired the St. Paul property for its attractive value-add and growth potential. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease.

~~We plan to invest in both core income~~-~~producing properties requiring relatively small improvements or enhancements and value~~31-added properties that will require more significant investments of capital or management attention (including, but not limited to, leasing vacant space or extending expiring leases) that we expect to provide current income as well as the increased potential for higher long-term value to our company. Our long-term plan is to invest in value-added properties while maintaining a significant part of our portfolio in core properties. Our investment allocation between these two types of properties may significantly fluctuate in the short term as we seek the best opportunities.

~~Factors~~Table ~~That~~of ~~May Influence Our Operating Results~~Contents

~~Acquisition~~If ~~Strategy.~~we Weelect ~~plan~~ to ~~grow~~be ~~our~~taxed ~~business~~as ~~through~~a REIT, we must pay such distributions in the ~~acquisition~~taxable ofyear ~~new~~to ~~properties~~which they relate, ~~initially~~or ~~targeting~~in ~~properties~~the ~~that~~following ~~meet~~taxable year if either (i) we declare the ~~criteria~~distribution ~~described~~before ~~above~~we ~~under~~timely ~~“—Overview”~~file our federal income tax return for the year and ~~elsewhere~~pay inthe ~~this~~distribution ~~report.~~on Weor ~~expect~~before the ~~properties~~first regular dividend payment date after such declaration or (ii) we ~~acquire~~declare ~~will~~the bedistribution ~~subject~~in October, November or December of the taxable year, payable to ~~mortgage~~shareholders ~~financing~~of ~~and~~record ~~other~~on ~~indebtedness~~a ~~that~~specified day in any such month, and we ~~will~~actually ~~assume~~pay orthe ~~refinance~~dividend before the end of January of the following year. ~~Debt~~The ~~service~~distributions onunder ~~such~~clause ~~indebtedness~~(i) ~~will~~are ~~have~~taxable ato ~~priority~~the ~~over~~shareholders ~~any~~in the year in which paid, and the distributions ~~with~~in ~~respect~~clause (ii) are treated as paid on December 31st of the prior taxable year. In both instances, these distributions relate to our ~~common~~prior ~~stock~~taxable year for purposes of the 90% distribution requirement.

34If we elect to be taxed as a REIT, we will pay federal income tax on taxable income, including net capital gain, that we do not distribute to shareholders. Furthermore, if we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year we will be taxed on, at least the sum of:

~~Rental~~· ~~Revenue.~~85% ~~The amount~~ of ~~net rental revenue generated by~~ our ~~properties~~REIT ~~depends~~ordinary ~~primarily~~income on our ability to maintain the occupancy rates of currently leased space and to lease space that becomes available. As of December 31, 2015, our properties were 72% leased. We believe that the average rental rates for ~~our~~such properties are generally equal to the current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns affecting the Minneapolis-St. Paul metropolitan area or downturns in our tenants’ businesses that impair our ability to renew leases or re-let space or the ability of our tenants to fulfill their lease commitments could adversely affect our revenues. In additionyear, ~~growth in rental revenue primarily will depend on our ability to acquire additional properties that meet our investment criteria.~~

~~Conditions~~· in95% ~~Our~~of ~~Markets. Our current properties are located in the Minneapolis-St. Paul metropolitan area. Positive or negative changes in economic or other conditions in this area, or areas in~~ our ~~prospective~~REIT ~~proprieties,~~capital ~~including~~gain ~~employment~~income ~~and~~for ~~wage~~such ~~rates~~year, ~~natural disasters~~ and ~~other factors, may impact our overall performance.~~

~~Operating~~· Expenses. Our operating expenses primarily consist of property taxes, management fees, utilities, insurance and site maintenance costs. As of December 31, 2015, some of our leases required tenants to reimburse us for a share of our operating expenses. Increases or decreases in any ~~unreimbursed~~undistributed ~~operating~~taxable ~~expenses,~~income ~~either due to the nature of the expenses not requiring reimbursement~~ from our tenants or due to a reduction in leased square footage requiring tenant reimbursement of a portion of our operating expenses, will impact our overall performance. As a public company, we estimate our annual general and administrative expenses will increase due to increased insurance, accounting and other expenses related to SEC reporting and other compliance matters compared to our historic operations prior ~~to operating as a public real estate holding company~~periods. Legal fees incurred in 2015 and 2014 were significant due to the Company’s acquisition and refinancing activities. We expect legal fees to continue to be primarily associated with such activities and business matters customary to a public real estate company.

~~Interest~~It ~~Expense~~is possible that we may not have sufficient cash to meet the distribution requirements discussed above. ~~Our~~This ~~interest~~could ~~expense~~result ~~will~~because ~~depend~~of oncompeting demands for funds, or because of timing differences between the ~~amounts~~actual wereceipt ~~borrow~~of asincome ~~well~~and asactual payment of deductible expenses and the ~~interest~~inclusion ~~rates~~of ~~charged~~that income byand deduction of such expenses in arriving at our ~~lenders~~REIT taxable income. ~~Our~~For ~~current~~example, ~~loan~~we ~~agreements~~may ~~are~~not adeduct ~~mix~~recognized ofcapital losses ~~both~~from ~~fixed~~our ~~and~~“REIT ~~floating~~taxable ~~rates~~income.” Further, asit ~~well~~is aspossible ~~secured~~that, ~~and~~from ~~unsecured~~time byto time, we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our ~~properties~~allocable share of cash attributable to that sale. ~~Our~~As ~~aggregate~~a ~~interest~~result ~~expense~~of the foregoing, we may ~~increase~~have asless wecash ~~acquire~~than ~~properties~~is ~~and~~necessary ~~could~~to ~~fluctuate~~distribute ~~between~~taxable ~~periods~~income ~~based~~sufficient to avoid corporate income tax and the excise tax imposed on certain undistributed income or even to meet the ~~variable~~90% ~~rate~~distribution ~~loan~~requirement. ~~arrangements~~In such a situation, we may need to borrow funds, raise funds through the issuance of additional shares of common stock or, if wepossible, pay dotaxable ~~not~~dividends ~~hedge~~of ~~any~~our ~~such~~common ~~interest~~stock ~~rate~~or ~~risk~~debt securities.

~~Critical~~Unregistered ~~Accounting~~Sales ~~Policies~~of ~~and~~Equity ~~Estimates~~Securities

~~Our~~No ~~discussion~~private ~~and~~placement ~~analysis~~ of the ~~historical~~Company’s shares ~~financial condition and results~~ of ~~our~~common ~~operations~~stock ~~are~~was ~~based~~completed ~~upon~~in ~~our~~2016 ~~financial~~that ~~statements~~was ~~which~~not ~~have~~previously ~~been~~disclosed ~~prepared~~ in ~~accordance~~a ~~with~~Form ~~U.S.~~10-Q ~~generally accepted accounting principles,~~ or ~~GAAP~~Form 8-K.

~~The~~Stock preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. We have provided a summary of our significant accounting policies in the notes to the consolidated financial statements of our company elsewhere in this report. We have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. We evaluate these estimates on an ongoing basis, based upon information currently available and on various assumptions that we believe are reasonable as of the date hereof. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those of other companies. There have been no significant changes to those policies during the year ended December 31, 2015.Repurchases

35None.

~~Investment~~Item in6. ~~Real~~Selected ~~Estate~~Financial ~~and Fixed Assets~~Data

~~Investment~~Not inrequired ~~real~~for estate and fixed assets are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction, and tenant allowances and improvements. Maintenance and repairs are expensed as incurred, and major improvements are capitalized. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible asset and identifiable intangibles based on their relative fair values. We assess fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a ~~number~~smaller ofreporting ~~factors including historical operating results, known and anticipated trends, and market economic conditions~~company.

WeItem allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values7. ~~Acquisitions~~ ~~of real estate are recorded based upon preliminary allocations of the purchase price to management~~Management’s ~~assessment~~Discussion ofand ~~the~~Analysis ~~fair value~~ of ~~tangible~~Financial ~~and~~Condition ~~intangible assets~~ and ~~any~~Results ~~assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date~~ of ~~acquisition.~~Operations

~~Depreciation~~The isfollowing ~~provided~~discussion ~~using~~and ~~the~~analysis ~~straight-line~~of our ~~method~~financial ~~over~~condition ~~the~~and ~~estimated~~results ~~useful~~of ~~life~~operations ofshould ~~the~~be ~~assets~~read ~~for~~together ~~building,~~with ~~improvements,~~our ~~and~~audited ~~furniture~~financial statements and ~~equipment,~~related ~~and~~notes which ~~the~~are ~~term~~included ofelsewhere ~~the~~in ~~lease~~this ~~for~~Annual ~~tenant~~Report ~~improvements~~on Form 10-K. ~~The~~Our ~~estimated~~actual ~~useful~~results ~~lives~~could ~~being~~differ ~~used~~materially ~~are~~from those anticipated in the forward-looking statements included in this discussion as ~~follows:~~a result of certain factors, including, but not limited to, those discussed in “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Land Improvements	3-15 years
Building	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

-32-

~~Intangible~~Table ~~Assets~~of Contents

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. Amortization of other intangibles is recorded in depreciation and amortization expense.Overview

~~Principles~~Talon Real Estate Holding Corp is a publicly traded real estate corporation that invests primarily in single and multi-tenant office, industrial, hospitality and retail properties within the Midwest and South Central regions of ~~Consolidation~~the United States. It currently owns eleven properties. Headquartered in Minneapolis, MN and founded in June 2013, Talon’s primary objective is to provide shareholders with attractive returns from investments in real estate through dividend distribution and growth.

WeOn ~~evaluate~~June ~~the~~7, ~~need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810~~2013, ~~Consolidation. In determining whether~~ we ~~have~~acquired a ~~controlling~~49% interest in an ~~affiliate~~entity ~~and the requirement to consolidate the accounts of~~ that ~~entity,~~owns ~~management~~an ~~considers~~industrial ~~factors~~complex ~~such~~consisting ~~as ownership interest, authority to make decisions, contractual and substantive participating rights~~ of ~~the~~two ~~limited~~buildings ~~partners~~with ~~and~~approximately ~~shareholders~~171,639 assquare ~~well~~feet aslocated ~~whether~~in the Minneapolis-St. ~~entity~~Paul ismetropolitan ~~a variable interest entity for which we are the primary beneficiary~~area. The ~~accompanying~~buildings ~~consolidated~~currently ~~financial~~have ~~statements~~a ~~include~~combined ~~the~~occupancy ~~accounts~~ of ~~Talon Real Estate Holding Corp~~85%. ~~(“TREHC”)~~We ~~and~~entered ~~Talon~~into ~~OP,~~a ~~our~~contribution agreement ~~Operating~~to ~~Partnership. Talon~~acquire OPthe ~~also~~remaining ~~consolidates~~interest ~~5130~~in ~~LLC,~~this an entity in which itclosed ~~has~~at athe ~~49%~~end ~~ownership~~of ~~interest,~~2018. ~~based~~In onMarch ~~its~~of ~~ability~~2019 towe ~~control~~entered ~~the~~into ~~operating~~a purchase and ~~financial~~sale ~~decisions~~agreement ofto ~~5130~~sell ~~LLC. All~~this ~~significant intercompany balances have been eliminated in consolidation~~asset.

36In 2014, we completed two acquisitions totaling approximately $58 Million and over one million in gross building square feet. On May 29, 2014, we completed the acquisition of a 227,000 square foot building situated on 20 acres of land in Minnetonka, MN that was 100% leased by over 100 tenants who are wholesale distributors. This property contributes to our core stable income investment strategy. On July 2, 2014, we completed the acquisition of a thirteen-story office tower located in downtown St. Paul, MN totaling 856,223 total building square feet that was 62% occupied by corporate and government tenants at time of acquisition and is currently 60% occupied. Management acquired the St. Paul property for its attractive value-add and growth potential. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease. On January 27, 2017 we executed a second amendment to the lease which amended the original lease to a seven-year term with a commencement date of January 1, 2018. We exchanged this asset for Operating Units of First Capital Reit in June of 2018.

~~Noncontrolling~~On ~~Interest~~August 31, 2018, Talon OP, L.P. (Talon-OP), which is the entity through which Talon Real Estate Holding Corp. (“Talon”) conducts substantially all of its business, entered into a Contribution Agreement (the “Antigua Contribution Agreement”) with First Capital Real Estate Trust, Incorporated (“Contributor”), through First Capital Real Estate Operating Partnership, L.P. (the “FC-OP”), its operating partnership, for the acquisition of the FC-OP’s interests in and to Goat Head Hill and Dutchman’s Bay, Island of Antigua (the “Antigua Project”), including, without limitation, that certain Memorandum of Agreement dated July 28, 2015 between Brown McLennon, the FC-OP and the government of Antigua and Barbuda regarding the development of hotels on the properties known as Dutchman’s Bay and Goat Head Hill on Antigua and the FC-OP’s 100% ownership interest in Goat Head Hill Resort Development Ltd and Dutchman’s Bay, an Antigua and Barbuda Corporation.

~~Interests~~Pursuant into the ~~Operating~~Antigua ~~Partnership~~Contribution Agreement, ~~held~~the byFC-OP ~~limited~~agreed ~~partners~~to ~~are~~transfer ~~represented~~all byof ~~Operating~~its ~~Partnership~~interests ~~units. The Company's interest~~ in the ~~Operating~~Antigua ~~Partnership~~Project ~~was~~to ~~65%~~Talon-OP. ofIn ~~the~~consideration ~~common~~for ~~units~~such oftransfer Talon-OP ~~the~~will ~~Operating~~issue ~~Partnership~~to asthe ofFC-OP ~~December~~$30.0 ~~31,~~million ~~2015~~in ~~and~~units ~~64.5% as~~ of ~~December~~its ~~31,~~limited ~~2014.~~partnership ~~The~~interests ~~Operating~~(“LP ~~Partnership’s~~Units”), ~~income~~or is12,000,000 LP ~~allocated~~Units ~~to holders of common units~~ based ~~upon~~on ~~the~~a ~~ratio~~valuation of ~~their~~$2.50 ~~holdings~~per toLP ~~the total units outstanding during the period~~Unit. ~~Holders~~The ofLP ~~preferred~~Units ~~units~~will ~~receive~~be ~~certain~~payable ~~distributions~~in ~~based~~three oninstallments over a ~~percentage~~two ofyear ~~the~~period. The ~~liquidation~~FC-OP ~~preference.~~has ~~Capital~~agreed ~~contributions,~~to ~~distributions,~~sign ~~syndication~~such ~~costs,~~documents ~~and~~at ~~profits~~the ~~and~~Closing ~~losses~~as are ~~allocated~~necessary toin ~~non-controlling~~connection ~~interests~~with inits ~~accordance~~admission ~~with~~as ~~the~~a ~~terms~~limited partner of the ~~Operating~~Company. ~~Partnership~~This ~~agreement~~transaction closed in November 2018.

~~The~~On ~~portion~~August of31, ~~membership~~2018, ~~interests~~Talon inOP, ~~5130~~L.P. ~~LLC~~(Talon-OP), which ~~not~~is ~~held~~the byentity ~~Talon~~through OPwhich isTalon ~~reported~~Real asEstate ~~noncontrolling~~Holding ~~interest~~Corp. (“Talon”) conducts substantially all of its business, entered into a Contribution Agreement (the “Hotels Contribution Agreement”) with First Capital ~~contributions~~Real Estate Trust, ~~distributions~~Incorporated (“Contributor”), ~~and~~through ~~profits~~First ~~and~~Capital ~~losses~~Real ~~are~~Estate ~~allocated~~Operating Partnership, L.P. (the “FC-OP”), its operating partnership, for the acquisition of seven entities, as described in the Hotels Contribution Agreement. In consideration for such transfer Talon-OP will issue to the ~~noncontrolling~~FC-OP ~~interest~~$14,796,765.00 in units of its limited partnership interests (“LP Units”), or 5,918,706 LP Units based on ~~membership~~a ~~percentages~~valuation of $2.50 per LP Unit. The aggregate value of the Companies/Hotels is $40,790,000 and a ~~terms~~credit for existing indebtedness (“Existing Indebtedness”) of $25,993,235.00. The Existing Indebtedness is set forth on Exhibit B attached hereto. The FC-OP has agreed to sign such documents at the ~~operating~~Closing ~~agreement~~as are necessary in connection with its admission as a limited partner of the Talon-OP.

~~Revenue Recognition~~-33-

~~Base~~Table ~~rental income is recognized on a straight-line basis over the terms~~ of the related leases, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rental income earned and amounts due according to the respective lease agreements are credited or charged to deferred rent receivable, as applicable.Contents

~~Tenant~~Pursuant ~~recoveries related~~ to ~~reimbursement~~the terms of ~~real~~the ~~estate~~Hotels ~~taxes~~Contribution Agreement, ~~insurance,~~Talon-OP’s ~~repairs~~obligation ~~and~~to ~~maintenance~~close ~~and~~upon ~~other operating expenses are recognized as revenue in~~ the ~~period~~acquisition ~~the applicable expenses are incurred. Recoveries are billed monthly using estimated operating costs and an additional billing or a refund~~ is ~~made~~subject to ~~tenants~~customary inconditions ~~the~~to ~~following~~closing. ~~year~~This ~~after~~series of ~~actual~~transactions ~~operating~~closed ~~expenses~~in ~~are~~December ~~determined~~2018.

~~Impairment~~Factors ofThat ~~Long-Lived~~May ~~Assets~~Influence Our Operating Results

Acquisition Strategy. We ~~assess~~plan to ~~the~~grow ~~carrying~~our ~~value~~business ofthrough ~~investment~~the ~~property~~acquisition ~~and~~of ~~related~~new ~~intangibles~~properties, ~~whenever~~initially ~~events~~targeting orproperties ~~changes in circumstances indicate~~ that meet the ~~carrying~~criteria ~~amount~~described above ofunder an“—Overview” ~~asset~~and ~~may~~elsewhere ~~not be recoverable~~ in ~~accordance~~this ~~with GAAP~~report. ~~Impairment~~We ~~losses~~expect ~~are~~the ~~recorded~~properties onwe ~~real~~acquire ~~estate~~will ~~assets~~be ~~held~~subject ~~for~~to mortgage ~~investment~~financing ~~when~~and ~~indicators~~other ofindebtedness ~~impairment~~that ~~are~~we ~~present~~will ~~and~~assume ~~the~~or ~~future~~refinance. ~~undiscounted~~Debt ~~cash~~service ~~flows~~on ~~estimated~~such toindebtedness bewill ~~generated~~have bya ~~those~~priority over ~~assets~~any ~~are~~distributions ~~less~~with ~~than~~respect ~~the~~to ~~assets’~~our ~~carrying~~common ~~amount~~stock.

~~Income~~Rental ~~Taxes~~Revenue. The amount of net rental revenue generated by our properties depends primarily on our ability to maintain the occupancy rates of currently leased space and to lease space that becomes available. As of December 31, 2016, our properties were 73% leased. We believe that the average rental rates for our properties are generally equal to the current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns affecting the Minneapolis-St. Paul metropolitan area or our other location or downturns in our tenants’ businesses that impair our ability to renew leases or re-let space or the ability of our tenants to fulfill their lease commitments could adversely affect our revenues. In addition, growth in rental revenue primarily will depend on our ability to acquire additional properties that meet our investment criteria.

WeConditions ~~intend~~in toOur ~~elect~~Markets. toOur current beproperties ~~taxed~~are aslocated ain ~~REIT under~~ the ~~Internal~~Minneapolis-St. ~~Revenue~~Paul ~~Code~~metropolitan ~~after~~area, ~~we meet REIT qualifications but no sooner than with our taxable year ending December 31~~Texas, ~~2016. To qualify as a REIT~~Oklahoma, ~~we must meet certain organizational~~ and ~~operational~~Antiqua. ~~requirements,~~Positive ~~including~~or anegative changes ~~requirement~~in toeconomic ~~distribute at least 90% of our annual REIT taxable income to our shareholders (which is computed without regard to the dividends paid deduction~~ or ~~net~~other ~~capital~~conditions ~~gain and which does not necessarily equal net income as calculated~~ in ~~accordance~~these ~~with~~areas ~~U.S. generally accepted accounting principles,~~ or ~~U.S. GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to~~ our ~~shareholders.~~prospective ~~If we fail to qualify as a REIT in any taxable year~~areas, weincluding ~~will~~employment beand ~~subject~~wage ~~to federal income tax on our taxable income at regular corporate income tax~~ rates, ~~and~~natural generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income disasters and ~~net~~other ~~cash available for distribution to shareholders. However~~factors, wemay ~~intend~~impact toour ~~organize~~overall ~~and operate in such a manner as to qualify for treatment as a REIT~~performance.

37Operating Expenses. Our operating expenses primarily consist of property taxes, management fees, utilities, insurance and site maintenance costs. As of December 31, 2016, some of our leases require tenants to reimburse us for a share of our operating expenses. Increases or decreases in any unreimbursed operating expenses, either due to the nature of the expenses not requiring reimbursement from our tenants or due to a reduction in leased square footage requiring tenant reimbursement of a portion of our operating expenses, will impact our overall performance. Legal fees incurred in 2016 and 2015 were significant due to the Company’s acquisition and refinancing activities. We expect legal fees to continue to be primarily associated with such activities and business matters customary to a public real estate company.

~~The~~Interest ~~Company accounts for income taxes under FASB guidelines~~Expense. ~~Deferred~~Our ~~income~~interest expense ~~tax~~will ~~assets~~depend ~~and~~on ~~liabilities are determined based upon differences between~~ the ~~financial~~amounts ~~reporting~~we ~~and~~borrow ~~tax~~as ~~basis~~well ofas ~~assets and liabilities and are measured using~~ the ~~enacted~~interest ~~tax~~ rates ~~and~~charged ~~laws~~by ~~that~~our ~~will~~lenders. beOur incurrent ~~effect~~loan ~~when the differences~~ agreements are ~~expected~~a tomix ~~reverse. Accounting standards require the consideration~~ of aboth ~~valuation~~fixed ~~allowance~~and ~~for~~floating ~~deferred~~rates, ~~tax~~as ~~assets~~well ifas itsecured isand ~~“more~~unsecured ~~likely~~by ~~than~~our ~~not”~~properties. ~~that~~Our ~~some~~aggregate ~~component~~interest orexpense may ~~all~~increase ofas ~~the~~we ~~benefits~~acquire ofproperties ~~deferred~~and ~~tax~~could ~~assets~~fluctuate ~~will~~between ~~not~~periods bebased ~~realized.~~on ~~The Company's policy of accounting for uncertain tax positions is to recognize~~ the ~~tax~~variable ~~effects~~rate ~~from~~loan ~~an uncertain tax position in the financial statements~~arrangements, ~~only~~ if ~~the~~we ~~position is more likely than~~ do not tohedge beany ~~sustained~~such oninterest ~~audit,~~rate ~~based on the technical merits of the position~~risk.

~~Accounting~~Liquidity. ~~Standards~~Since ~~Applicable~~our available cash and cash flows from current operations do not provide us with adequate cash to ~~Emerging~~satisfy ~~Growth~~current ~~Companies~~liabilities and do not provide us with adequate liquidity for the foreseeable future, we anticipate that we will undertake future debt or equity financing in 2019 or liquidate one or more of our property holdings.

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. Section 102(b)(1) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to use the extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.-34-

~~Market~~Table ~~Conditions~~of ~~and Outlook~~Contents

~~Our~~Critical ~~recent~~Accounting ~~acquisitions~~Policies were accomplished utilizing a 721 Exchange tax deferral methodology or “UPREIT” providing several unique advantages over a 1031 exchange or selling to cash buyers. This strategy is advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, stay invested in real estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted 1:1 for Talon common stock under the ticker “TALR” and their capital gains tax obligations are deferred until the common stock is ultimately sold in the public market.Estimates

Our ~~strategy~~discussion isand toanalysis ~~continue offering these tax-deferred solutions to real estate owners as part~~ of ~~diversifying~~the ~~our~~historical financial ~~shareholder~~condition ~~base creating liquidity~~ and ~~shareholder~~results ~~value. We continue to believe office and industrial properties offer the best return on equity metrics as part~~ of our ~~investment~~operations ~~strategy. Retail~~are ~~will~~based ~~also~~upon ~~be part~~ our ~~overall~~financial ~~portfolio~~statements ~~with~~which anhave ~~average~~been ~~overall~~prepared ~~target~~in ~~portfolio~~accordance with ~~contribution~~U.S. ofgenerally ~~nearly~~accepted ~~20%~~accounting ~~over~~principles, ~~the~~or ~~long-term~~GAAP.

The ~~middle~~preparation ~~corridor~~ of ~~the~~these ~~United~~financial ~~States~~statements in ~~continues~~conformity with GAAP requires management to ~~offer~~make ~~higher~~estimates ~~cap~~and ~~rates~~assumptions ~~compared~~in tocertain circumstances that affect the ~~west~~reported amounts of assets and ~~east~~liabilities ~~coasts~~at the date of the financial statements and wethe ~~will~~reported ~~continue~~amounts of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. We have provided a summary of our significant accounting policies in the notes to ~~explore~~the ~~additional~~consolidated ~~investment~~financial ~~options~~statements ~~within~~of our company elsewhere in this ~~region~~report. toWe ~~continue~~have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our ~~mission~~financial tocondition ~~provide~~and ~~return~~results of operations. We evaluate these estimates on ~~equity~~an ~~targets~~ongoing basis, based upon information currently available and on various assumptions that we believe are reasonable as of ~~8-15%~~the ~~per~~date ~~asset~~hereof. orOther ~~portfolio~~companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those of other companies. There have been no significant changes to those policies during the year ended December 31, 2016.

~~Results~~Investment ofin ~~Operations~~Real Estate and Fixed Assets

~~Financial~~Investment in real estate and ~~operating~~fixed ~~results~~assets are ~~for~~carried ~~the~~at ~~year~~cost ~~ended~~less ~~December~~accumulated ~~31,~~depreciation ~~2014~~and ~~included~~amortization. ~~significant~~Property ~~costs~~such ~~incurred~~as toland, ~~recapitalize~~building and ~~operate~~improvements asincludes acost of ~~public~~acquisitions, ~~company~~development, and ~~costs~~construction, ofand ~~new~~tenant ~~employees~~allowances and ~~consultants~~improvements. ~~The~~ ~~properties~~Maintenance ~~owned~~and byrepairs ~~the~~are ~~Company~~expensed inas incurred, ~~2014~~and ~~were~~major ~~still~~improvements ~~held~~are bycapitalized. We allocate the ~~Company~~cost inof ~~2015. The~~an ~~financial~~acquisition, ~~and~~including ~~operating~~the ~~results~~assumption ~~for~~of liability, to the ~~year~~acquired ~~ended~~tangible ~~December~~asset ~~31,~~and ~~2015~~identifiable ~~were~~intangibles ~~greatly~~based ~~impacted~~on bytheir arelative ~~full~~fair ~~year~~values. ofWe ~~activity~~assess ~~from~~fair ~~the~~value ~~properties~~based ~~acquired~~on estimated incash ~~May~~flow projections that utilize appropriate discount and/or ~~July~~capitalization rates and available market information. Estimates of ~~2014,~~future ~~respectively,~~cash ~~and~~flows ~~cost~~are ~~related~~based toon ~~refinancing~~a number of factors including historical operating results, known and ~~leasing~~anticipated ~~activity~~trends, and market economic conditions.

We ~~expect~~allocate ~~our~~the ~~revenues,~~cost ~~expense~~of ~~reimbursements~~an ~~and~~acquisition, including ~~each~~the ~~category~~assumption of ~~expenses~~liability, ~~will~~to ~~increase~~the onacquired antangible ~~absolute~~assets ~~basis~~(including inland, buildings and personal property) determined by valuing the ~~future~~property as weif ~~seek~~it towere ~~acquire~~vacant, ~~additional~~and ~~properties,~~identifiable ~~assume~~intangibles orbased ~~refinance~~on ~~indebtedness~~their inrelative ~~connection~~fair ~~with~~values. ~~the~~Acquisitions ~~acquisitions~~of real ~~and~~estate ~~build~~are recorded based upon preliminary allocations of the ~~infrastructure~~purchase ~~necessary~~price to ~~grow~~management’s ~~our~~assessment ~~business~~of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to ~~operate~~adjustment as aadditional ~~publicly~~information is ~~traded~~obtained ~~company~~up to one year after the date of acquisition.

38Depreciation is provided using the straight-line method over the estimated useful life of the assets for building, improvements, and furniture and equipment, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

Our revenues and expenses have changed significantly compared to the same period in the previous year due to acquisitions of the property at Bren Road in Minnetonka, Minnesota on May 29, 2014 and the property at 180 E. Fifth Street in St. Paul, Minnesota on July 2, 2014. Since their acquisition, these two properties have generated over $11.1 million and $5.7 million in revenues for the year ended December 31, 2015 and 2014, respectively, and had total operating expenses of $6.5 million and $3.3 million for the year ended December 31, 2015 and 2014, respectively. We expect our revenues, tenant reimbursements and many expenses will continue to increase on an absolute basis in the future as we seek to acquire additional properties, assume or refinance indebtedness in connection with the acquisitions and build the infrastructure necessary to grow our business. In the near term, we expect to incur higher legal and other professional fees in pursuit of acquisitions.

Land Improvements	3-15 years
Building	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

~~Comparison of year ended December 31, 2015 to the year ended December 31, 2014~~-35-

~~Revenues~~Table ~~and~~of ~~Expenses~~Contents

~~Rental~~Intangible revenues increased $3,448,402, or 84.4%, to $7,532,117 for 2015 compared to $4,083,715 for 2014. Tenant reimbursements increased $1,738,235, or 86.8%, to $3,739,796 for 2015 compared to $2,001,561 for 2014. The increase in rental revenues and tenant reimbursements in 2015 compared to the prior year is primarily attributable to the impact of a full year of activity from the properties acquired in May and July of 2014, respectively.Assets

~~General~~Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and ~~administrative~~any ~~expenses~~significant ~~increased~~intangible ~~$213,707,~~assets or(such ~~77.5%~~as above- and below-market leases and value of acquired in-place leases), toand ~~$489~~any assumed liabilities,~~557~~ ~~for~~and ~~2015~~allocates ~~compared~~the topurchase ~~$275,850~~price ~~for~~based ~~2014~~on these fair value assessments. The ~~increase~~Company isamortizes ~~primarily~~identified ~~due~~intangible toassets anand ~~increase~~liabilities inbased ~~due~~on ~~diligence~~the ~~for~~period ~~potential~~over ~~deals~~which the assets and ~~other~~liabilities ~~general~~are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and ~~administrative~~below-market ~~expense~~leases) ~~due~~are toamortized over the ~~growth~~term of the ~~Company~~related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. Amortization of other intangibles is recorded in depreciation and amortization expense.

~~Salary~~Principles ~~and compensation decreased by $436,366, or 36.6%, to $755,176 for 2015, compared to $1,191,542 in 2014. The decreased expenses in 2015 was attributable to the immediate vesting~~ of ~~non-cash stock compensation of approximately $456,000 in 2014, offset by a net increase in total cash compensation for the period.~~Consolidation

~~Professional~~We ~~fees~~evaluate ~~increased~~the ~~$409,927,~~need orto ~~112.4%~~consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. In determining whether we have a controlling interest in an affiliate and the requirement to ~~$774~~consolidate the accounts of that entity,~~593~~ ~~for~~management ~~2015~~considers factors such as ownership interest, ~~compared~~authority to ~~$364~~make decisions,~~666~~ contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for ~~2014~~which we are the primary beneficiary. The ~~increase~~accompanying isconsolidated ~~due~~financial ~~primarily~~statements toinclude the ~~impact~~ accounts of aTalon ~~full~~Real ~~year~~Estate ofHolding ~~activity~~Corp. ~~from~~(“TREHC”) ~~the~~and ~~properties~~Talon ~~acquired~~OP, our Operating Partnership. Talon OP also consolidates 5130 LLC, an entity in ~~May~~which it has a 49% ownership interest, based on its ability to control the operating and ~~July~~financial decisions of ~~2014,~~5130 ~~respectively~~LLC. All significant intercompany balances have been eliminated in consolidation.

~~Property~~Noncontrolling operating expenses increased by $2,431,829, or 91.6%, to $5,086,582 for 2015, compared to $2,654,753 for 2014. The increase in property operating expenses compared to the prior year is primarily attributable to the impact of a full year of activity from the properties acquired in May and July of 2014, respectively.Interest

~~Real~~Interests ~~estate~~in ~~taxes~~the ~~and~~Operating ~~property~~Partnership held ~~insurance~~by ~~increased~~limited partners are represented by ~~$694,387,~~Operating orPartnership 72units.5 The Company's interest in the Operating Partnership was 65%, toof ~~$1,652,025~~the ~~for~~common ~~2015,~~units ~~compared~~of tothe ~~$957~~Operating Partnership as of December 31,~~638~~ ~~for~~2016 ~~2014~~and 65% as of December 31, 2015. The ~~increase~~Operating inPartnership’s income ~~real~~is ~~estate~~allocated ~~taxes~~to ~~and~~holders ~~insurance~~of ~~compared~~common tounits ~~the~~based ~~prior~~upon ~~year~~the isratio ~~primarily~~of ~~attributable~~their holdings to the ~~impact~~total ofunits aoutstanding ~~full~~during ~~year~~the period. Holders of ~~activity~~preferred ~~from~~units receive certain distributions based on a percentage of the ~~properties~~liquidation ~~acquired~~preference. inCapital ~~May~~contributions, distributions, syndication costs, and ~~July~~profits and losses are allocated to non-controlling interests in accordance with the terms of ~~2014,~~the ~~respectively~~Operating Partnership agreement.

~~Depreciation~~The ~~and~~portion ~~amortization~~of ~~expense~~membership ~~increased~~interests byin 5130 ~~$2,514,527,~~LLC ornot ~~88.4%,~~held toby ~~$5,359,556~~Talon ~~for~~OP ~~2015,~~is ~~compared~~reported toas ~~$2,845,029~~noncontrolling ~~for 2014~~interest. ~~The~~Capital ~~increase~~contributions, indistributions, ~~real~~and ~~estate~~profits ~~taxes~~ and losses ~~insurance~~are ~~compared~~allocated to the ~~prior~~noncontrolling ~~year~~interest isbased ~~primarily~~on ~~attributable~~membership topercentages ~~the~~and ~~impact~~terms of ~~a full year of activity from~~ the ~~properties~~operating ~~acquired in May and July of 2014, respectively~~agreement.

~~Interest~~Revenue expense increased by $2,653,318, or 134.3%, to $4,629,312 for 2015, compared to $1,975,994 for 2014. The net increase in interest expense compared to the prior year is primarily attributable to the impact of a full year of activity from the financing supporting the acquisitions of the two properties acquired in May and July of 2014, respectively and additional unsecured debt issued by the Company in 2015.Recognition

39Base rental income is recognized on a straight-line basis over the terms of the related leases, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rental income earned and amounts due according to the respective lease agreements are credited or charged to deferred rent receivable, as applicable.

~~Funds~~Tenant ~~from~~recoveries ~~Operations~~related to reimbursement of real estate taxes, insurance, repairs and ~~Non-GAAP~~maintenance ~~Reconciliation~~and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. Recoveries are billed monthly using estimated operating costs and an additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

The National Association of Real Estate Investment Trusts, or NAREIT, defines funds from operations, or FFO, as net income (loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties including the add back of real property depreciation, amortization of capitalized lease expenses, tenant allowances or improvements, and the like. We intend to calculate FFO in a manner consistent with the NAREIT definition.-36-

~~Management~~Table ~~intends to use FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure~~ of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors, and other interested parties use FFO as the primary metric for comparing the relative performance of equity REITs. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs.Contents

~~FFO~~Impairment ~~should not be considered as an alternative to net income or other measurements under GAAP as an indicator~~ of ~~our~~Long-Lived operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.Assets

We ~~define~~assess ~~adjusted funds from operations, or AFFO, as FFO excluding~~ the ~~non-cash~~carrying ~~effects~~value of ~~straight-line~~investment property ~~rent, amortization of lease inducements~~ and ~~deferred~~related ~~financing costs~~intangibles, ~~depreciation~~whenever ofevents ~~non-real~~or ~~estate,~~changes ~~and~~in ~~non-cash~~circumstances ~~compensation~~indicate ~~charges. U.S. GAAP requires rental revenues related to non-contingent leases~~ that ~~contain specified rental increases over~~ the ~~life~~carrying ofamount ~~the lease to be recognized evenly over the life~~ of ~~the~~an ~~lease.~~asset ~~This method~~ may not ~~result~~be inrecoverable ~~rental income~~ in ~~the~~accordance ~~early~~with years of a lease that is higher than actual cash received, creating a deferred rent receivable asset or lower income than actual cash received, creating a deferred rent revenue liability included in our consolidated balance sheetGAAP. AtImpairment ~~some~~losses ~~point~~are ~~during~~recorded ~~the lease, depending~~ on ~~its~~real ~~terms,~~estate ~~cash~~assets ~~rent~~held ~~payments~~for ~~may~~investment ~~exceed~~when orindicators of beimpairment ~~lower~~are ~~than~~present ~~the~~and ~~straight-line rent which results in~~ the ~~deferred~~future ~~rent~~undiscounted ~~receivable~~cash ~~asset~~flows orestimated ~~liability, respectively, decreasing~~ to ~~zero~~be ~~over~~generated ~~the~~by ~~remainder~~those ofassets ~~the~~are ~~lease~~less ~~term.~~than ~~By excluding~~ the ~~non-cash~~assets’ carrying portion of straight-line rental revenue and amortization of lease inducement and deferred financing costs as well as non-cash compensation expense, investors, analysts and our management can compare AFFO between periodsamount.

~~Below~~Income ~~is the calculation of FFO and AFFO and the reconciliation to net income (loss), which we believe is the most comparable GAAP financial measure:~~Taxes

~~Reconciliation~~We intend to elect to be taxed as a REIT under the Internal Revenue Code after we meet REIT qualifications but no sooner than with our taxable year ending December 31, 2019. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of ~~Net~~our ~~Loss~~annual ~~Attributable~~REIT taxable income to ~~Talon~~our ~~Real~~shareholders ~~Estate~~(which ~~Holding~~is ~~Corp~~computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with U.S. generally accepted accounting principles, or U.S. GAAP). As a REIT, we generally will not be subject to ~~Funds~~federal ~~From~~income ~~Operations~~tax to the extent we distribute qualifying dividends to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to shareholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

	Year Ended December 31,
In thousands $ (except per share)	2015					2014
	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
Net loss attributable to TREHC	$	(4,479)	16,620	$	(0.27)	$	(2,773)	15,915	$	(0.17)
Adjustments:
Non-controlling interest Operating Partnership		(2,417)	9,200		-		(972)	4,647		-
Consolidated depreciation and amortization:		5,360	-		-		2,845	-		-
adjust for non-real estate depreciation		(10)	-		-		(10)	-		-
adjust for amortization to revenue		202	-		-		149	-		-
adjust for noncontrolling real estate owned depreciation		(131)	-		-		(116)	-		-
Net adjustments		3,004	-		-		1,896	-		-
Funds from operations applicable to common shares	$	(1,475)	25,820	$	(0.06)	$	(877)	20,562	$	(0.04)

The Company accounts for income taxes under FASB guidelines. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position.

40Accounting Standards Applicable to Emerging Growth Companies

~~Reconciliation~~We qualify as an “emerging growth company” pursuant to the provisions of ~~Net~~the ~~Loss~~JOBS ~~Attributable~~Act. Section 102(b)(1) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to ~~Talon~~use ~~Real~~the ~~Estate~~extended ~~Holding~~transition ~~Corp~~period for complying with these new or revised accounting standards. Since we will not be required to ~~Adjusted~~comply ~~Funds~~with ~~From~~new ~~Operations~~or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

	Year Ended December 31,
	2015					2014
Adjusted funds from operations	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
FFO available to common shares	$	(1,475)	25,820	$	(0.06)	$	(877)	20,562	$	(0.04)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		103	-		-		191	-		-
Non-real estate depreciation		10	-		-		10	-		-
Amortization of deferred financing costs net of non-controlling real estate		1,194	-		-		208	-		-
Non-cash stock compensation charges		174	-		-		657	-		-
AFFO available to common shares	$	6	25,820	$	0.00	$	189	20,562	$	0.01

Market Conditions and Outlook

~~(1)~~Our ~~Noncontrolling~~recent ~~units~~acquisitions ofwere ~~the~~accomplished utilizing ~~Operating~~a ~~Partnership~~721 ~~are~~Exchange ~~exchangeable~~tax ~~for~~deferral methodology or “UPREIT” providing several unique advantages over a 1031 exchange or selling to cash buyers. This strategy is advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, orstay atinvested ~~the~~in ~~Company's~~real ~~discretion~~estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted 1:1 for Talon common ~~shares~~stock ofunder the ticker “TALR” and their capital gains tax obligations are deferred until the common stock onis aultimately ~~one-for-one~~sold ~~basis~~in the public market.

~~(2) Net income is calculated on a per share basis. FFO and AFFO are calculated on a per share and unit basis.~~-37-

~~Liquidity~~Table ~~and~~of ~~Capital Resources~~Contents

~~Liquidity~~Our strategy is ato ~~measure~~continue ofoffering these ~~our~~tax-deferred ~~ability~~solutions to ~~meet~~real ~~potential~~estate ~~cash~~owners ~~requirements,~~as ~~including~~part ~~commitments~~of todiversifying ~~repay borrowings, fund and maintain~~ our ~~operations~~shareholder ~~and~~base ~~assets,~~creating ~~acquire~~liquidity ~~properties, make distributions to our shareholders~~ and ~~other general business needs~~shareholder value. We ~~have~~currently ~~incurred~~believe ~~significant expenses related to operating as a public corporation~~hospitality, ~~building~~retail and ~~tenant~~student ~~improvements~~housing ~~at our~~ properties, ~~and~~offer ~~preparation~~the ~~for~~most ~~and~~attractive ~~execution~~return ofon ~~our~~equity ~~acquisition strategy creating a cash shortfall from operations through December 31, 2015~~metrics.

WeThe ~~currently~~middle docorridor ~~not~~of ~~have~~the ~~available~~United ~~cash~~States continues ~~and~~to ~~cash~~offer ~~flows~~higher ~~from~~cap ~~current~~rates ~~operations~~compared to ~~provide us with adequate liquidity for~~ the ~~foreseeable~~west ~~future. Our current liabilities exceed our unrestricted cash~~ and weeast ~~have~~coasts ~~insufficient cash flow from current operations to pursue our strategy without further financing. As of December 31, 2015, we had unrestricted cash of approximately $340,000~~ and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and increased cash flow from future operations to fund our ongoing business. There is no guarantee that we will becontinue ~~able~~ to ~~raise~~explore ~~any required~~ additional ~~capital~~investment options orwithin ~~generate~~this ~~sufficient~~region ~~cash flow from our current and future operations~~ to ~~fund~~continue our ~~ongoing~~mission ~~business. If the amount of capital we are able~~ to ~~raise~~provide ~~together~~return with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on ~~our~~equity ~~consolidated~~targets ~~financial~~of ~~statements,~~8-15% ~~and~~per itasset ~~is likely that investors will lose all~~ or ~~a part of their investment~~portfolio.

~~Our~~Results ~~short-term liquidity requirements consist primarily~~ of the need to raise additional capital to provide funding for approximately $7.8 million of tenant allowances, pay off maturing unsecured notes payable in the approximate amount of $2 million, and to use any remaining proceeds to apply to other existing current liabilities. Additionally, the Company, Talon OP and Mr. Kaminski are also guarantors of a mortgage on the building located at 180 E. Fifth Street in St. Paul, Minnesota. The mortgage includes a financial covenant requiring the guarantors to maintain a certain net worth and amount of cash and marketable securities throughout the term of the loan. Failure to satisfy the financial covenant will constitute an event of default under the loan agreements which the lender may remedy by accelerating the debt. We are currently attempting to refinance this mortgage and will attempt to obtain financing with more traditional covenants; however, there is no guarantee that the Company will be able to refinance the mortgage with more favorable terms, if at all. A sale of the building has also been contemplated to address the liquidity issue. We also require cash to pursue our strategy of near-term growth through acquisition of properties as well as pay our general and administrative expenses for operating as a public company and to satisfy our existing liabilities.Operations

41There were no new acquisitions or dispositions of any of the Company’s properties in 2015 or 2016. We expect our revenues, tenant reimbursements and many expenses will continue to increase on an absolute basis in the future as we seek to acquire additional properties, assume or refinance indebtedness in connection with the acquisitions and build the infrastructure necessary to grow our business. In the near term, we expect to incur higher legal and other professional fees in pursuit of acquisitions.

WeComparison ~~are~~of ~~currently~~year aended ~~party~~December to31, a2016 ~~purchase agreement~~ to ~~acquire certain properties in Minnesota that will require cash in~~ the ~~near~~year ended ~~future~~December to31, ~~complete. We may require up to approximately $81 million in debt and/or equity financing to complete the expected acquisition.~~2015

~~Our~~Revenues ~~long-term liquidity requirements consist primarily of funds to pay for scheduled debt maturities, non-recurring capital expenditures that need to be made periodically~~ and continued expansion of our business through acquisitions. Although we plan to aggressively pursue acquisitions to grow our business, there is no assurance that we will be able to acquire additional properties in the future.Expenses

~~Since~~Total ~~our~~revenue ~~available~~decreased ~~cash and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and are not expected to provide us with adequate liquidity for the foreseeable future~~$601,217 ~~we anticipate that we will undertake future debt~~ or ~~equity financings or asset sales during 2016~~5. ~~Additional~~1% ~~financing~~to $11,118,494 ~~or asset sales are necessary~~ for ~~our~~2016 ~~company~~compared to ~~continue~~$11,719,711 asfor ~~a going concern~~2015.

InRental ~~the~~revenues ~~future,~~decreased ~~we anticipate using a number of different sources to finance our liquidity needs~~$263, ~~including cash flows from operations~~365, ~~issuance of debt securities~~ or ~~equity securities (which might be common or preferred stock)~~3.5%, ~~private~~to ~~financings (such as additional bank credit facilities~~$7, ~~which may or may not be secured by our assets)~~268,752 ~~asset~~for ~~sales~~2016, compared ~~seller~~to ~~financing~~$7, ~~property-level mortgage debt~~532,117 orfor ~~any combination of these sources, to~~ the ~~extent~~prior ~~available to us, or other sources that may become available from time to time~~year. The ~~Any~~net ~~debt~~rental ~~that~~revenues weare ~~incur~~relatively ~~may~~consistent bewith ~~recourse~~the orprior ~~non-recourse~~year ~~and~~as ~~may be secured or unsecured. Although we have successfully raised equity capital in~~ the ~~past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance~~ composition of ~~securities. Our~~our ~~ability~~portfolio tostayed ~~obtain needed financing may be impaired by such factors as~~ the ~~capital~~same ~~markets,~~with ~~our status as~~ a ~~new~~slight ~~enterprise~~decrease ~~without~~in ~~significant~~base ~~assets or demonstrated operating history~~rents, ~~and/or~~due ~~the loss of key management. There is no guarantee that we will be able~~ to ~~raise~~some ~~any~~smaller ~~required~~tenant’s ~~additional~~leases ~~capital~~expiring orat ~~generate~~the Talon ~~sufficient~~First ~~cash~~Trust, ~~flow~~LLC’s ~~from our current and proposed operations to fund our ongoing business~~building.

~~Outstanding~~Tenant ~~Indebtedness~~reimbursements decreased $171,039, or 4.6%, to $3,568,757 for 2016 compared to $3,739,796 for the prior year. The net tenant reimbursements are relatively consistent with the same period in the prior year as the composition of our portfolio stayed the same with a slight decrease in tenants paying operating expense reimbursements across the portfolio in 2016 compared to the prior year.

~~5130~~General ~~LLC, an entity in which our Operating Partnership owns a 49% interest~~ and ~~that~~administrative ~~owns~~expenses anincreased $196,901 ~~industrial~~or ~~complex located in the Minneapolis-St~~40.2% ~~Paul~~to ~~metropolitan area~~$686,458 isfor ~~party~~2016 compared to a$489,557 ~~loan~~for ~~agreement secured by such industrial complex~~2015. The ~~loan~~increase ~~agreement~~is ~~provides~~primarily ~~for~~due ~~two~~to ~~term~~an ~~loans,~~increase ~~the~~in Adue ~~loan~~diligence costs and ~~the~~break-up Bfees ~~loan.~~for ~~Both~~potential ~~loans can be accelerated under certain circumstances, including if there is an event of default under the loan agreement~~deals.

~~Talon~~Salary ~~Bren~~and ~~Road,~~compensation ~~LLC,~~expense anincreased by ~~entity through which our Operating Partnership acquired the property located at 10301 Bren Road West~~$237, ~~Minnetonka~~392, MNor on31.4% ~~May~~to 29$992,568 ~~2014~~for 2016, iscompared ~~party~~ to a$755,176 ~~loan~~in ~~agreement secured by such property~~2015. It isThe ~~also~~increased aexpenses ~~party~~in to2016 ~~two loans the proceeds of which~~ were ~~used~~attributable to ~~fund~~an increase ~~certain~~in ~~capital~~non-cash ~~improvements~~stock atcompensation ~~the~~of ~~building. This~~approximately ~~property also secures the Talon Bren Road~~$237,000 ~~LLC~~in ~~Mortgage~~2016 2when ~~(as~~compared ~~defined~~to in the ~~table~~prior ~~below)~~year. ~~entered~~We ~~into~~did onnot ~~July~~have 2,any stock ~~2014~~grants in ~~connection with~~ the ~~acquisition~~year ofended ~~the~~December ~~property located at 180 E. Fifth Street St. Paul~~31, MN2015.

~~Talon~~Professional ~~First~~fees ~~Trust,~~increased ~~LLC~~$341,486, or ~~an entity through which our Operating Partnership acquired the property located at 180 E~~44.1% ~~Fifth~~to ~~Street St. Paul~~$1,116,079 MNfor ~~on July 2~~2016, ~~2014,~~compared ~~is party~~ to ~~a loan agreement secured by such property. On March 30~~$774,593 ~~2016,~~for ~~the lender accepted Mr~~2015. ~~Kaminski~~The asincrease anis ~~additional~~due ~~guarantor~~primarily ~~under~~to ~~the loan agreements. Although Mr. Kaminski, the Company and Talon OP have executed a joinder agreement adding Mr. Kaminski as~~ an ~~additional~~increase ~~guarantor~~of onapproximately ~~the loan~~$273,000 in ~~the~~legal ~~lender~~fees ~~has~~primarily ~~reserved~~related ~~all rights, remedies and recourses available~~ to itthe ~~for~~defense ~~any event~~ of ~~default~~claims ~~whether~~and ~~arising prior or after~~ the ~~date~~negotiation of ~~the~~a ~~agreement. There~~lease isamendment nowith ~~assurance~~a ~~that~~new ~~the~~tenant ~~financial~~for ~~covenants~~our ~~will~~180 South be5th ~~satisfied~~Street inbuilding ~~the~~when ~~future. We~~compared ~~are currently attempting~~ to ~~refinance this loan and~~ the ~~lender~~prior ~~is aware of the Company’s refinancing efforts~~year.

42Property operating expenses decreased by $505,184, or 9.9% to $4,581,396 for 2016, compared to $5,086,582 for 2015. The decrease in property operating expenses compared to the prior year is primarily attributable approximately $270,00 decrease in repairs and maintenance, $65,000 decrease in uncollectable accounts, $63,000 decrease in security costs and a $50,000 decrease in utilities.

~~The following table summarizes the Company’s notes payable as of December 31, 2015 and 2014:~~-38-

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	December 31, 2015		December 31, 2014
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.75%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	February 15, 2016	8.00%		481,934		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		11,123,773		11,378,013
Talon Bren Road, LLC Mortgage 2(3)	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		-
Talon Bren Road, LLC Mortgage 2	Secured fixed rate	December 31, 2014	6.00%		-		881,427
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		111,797		137,027
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,049,859		4,120,952
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		294,021		295,304
Talon OP, L.P. – Promissory Note – Related Party (4)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		500,000
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		250,000
				$	51,786,384	$	49,787,723

Table of Contents

(Real estate taxes and insurance increased by $124,639, or 7.5% to $1),776,664 for 2016, compared to $1,652,025 for 2015. The increase in real estate taxes and insurance compared to the prior year is primarily attributable to normal inflationary increases.

~~Beginning~~Depreciation ~~January~~and ~~2016,~~amortization ~~mechanics~~expense decreased ~~lien~~by ~~statements~~$462,331, ~~were~~to ~~filed~~$4,897,225 ~~upon the property at 180 E. Fifth Street~~ for ~~work~~2016, ~~completed~~compared to ~~prepare~~$5,359,556 ~~the tenant space~~ for ~~a significant lease entered into on April 9,~~ 2015. We ~~are~~The ~~working~~decrease toin ~~obtain~~depreciation ~~financing~~and amortization compared to ~~satisfy these liens. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under~~ the ~~loan~~prior ~~agreements,~~year ~~permitting~~is ~~the~~primarily ~~lender~~attributable to ~~accelerate~~approximately ~~the~~$348,000 ~~indebtedness~~decrease atin ~~its~~amortization ~~option. The lender is aware~~ of ~~this~~intangibles ~~default~~ and ~~our~~a ~~refinancing~~$96,000 ~~efforts~~decrease in todepreciation ~~cure~~on ~~it. They~~tenant ~~are currently not exercising any remedies with respect to any defaults~~improvements.

~~(2)~~Interest expense increased by $234,728, or 5.1% to $4,864,040 for 2016, compared to $4,629,312 for 2015. The net increase in interest expense compared to the prior year is primarily attributable to higher average borrowings and higher effective interest rates.

OnFunds ~~November~~from ~~16,~~Operations 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015. The note bears interest at 8% annually and ~~had~~Non-GAAP an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to February 15, 2016 and increased the note by $103,002 for the January 2016 fees and interest incurred through December 31, 2015 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9 to the financial statements).Reconciliation

The National Association of Real Estate Investment Trusts, or NAREIT, defines funds from operations, or FFO, as net income (3loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties including the add back of real property depreciation, amortization of capitalized lease expenses, tenant allowances or improvements, and the like. We intend to calculate FFO in a manner consistent with the NAREIT definition.

~~This~~Management ~~note~~intends ~~replaces~~to use FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the ~~previous~~primary ~~Talon~~measure ~~Bren~~of ~~Road,~~our ~~LLC~~operating ~~Mortgage~~performance. 2Historical ~~note~~cost accounting for real estate assets in accordance with GAAP implicitly assumes that ~~matured~~the ~~December~~value 31of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, ~~2014~~management ~~and~~believes that the presentation of operating results for real estate companies that use historical cost accounting is ~~secured~~insufficient by ~~the~~itself. ~~same~~In ~~property.~~addition, ~~The~~securities ~~original~~analysts, ~~maturity~~investors, ~~date~~and other interested parties use FFO as the primary metric for ~~this~~comparing ~~note~~the relative performance of ~~March~~equity 1,REITs. ~~2016~~There ~~was~~can ~~amended~~be no assurance that FFO presented by us is comparable to ~~March~~similarly 1,titled ~~2017~~measures of other REITs.

~~(4)~~FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

~~Related~~We ~~Party~~define ~~promissory~~adjusted ~~note~~funds ~~(see~~from ~~Note~~operations, or 6AFFO, as FFO excluding the non-cash effects of straight-line rent, amortization of lease inducements and deferred financing costs, depreciation of non-real estate, and non-cash compensation charges. U.S. GAAP requires rental revenues related to non-contingent leases that contain specified rental increases over the ~~financial~~life ~~statements)~~of the lease to be recognized evenly over the life of the lease. This method may result in rental income in the early years of a lease that is higher than actual cash received, creating a deferred rent receivable asset or lower income than actual cash received, creating a deferred rent revenue liability included in our consolidated balance sheet. At some point during the lease, depending on its terms, cash rent payments may exceed or be lower than the straight-line rent which results in the deferred rent receivable asset or liability, respectively, decreasing to zero over the remainder of the lease term. By excluding the non-cash portion of straight-line rental revenue and amortization of lease inducement and deferred financing costs as well as non-cash compensation expense, investors, analysts and our management can compare AFFO between periods. Our management utilizes this measurement to analyze our operating performance.

~~(5)~~-39-

OnTable January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively. In 2015, the Company extended the maturity dates of both notes to December 31, 2015. The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015. Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016. The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016.Contents

~~Off~~Below ~~Balance~~is ~~Sheet~~the ~~Arrangements~~calculation of FFO and AFFO and the reconciliation to net income (loss), which we believe is the most comparable GAAP financial measure:

AsReconciliation of ~~December~~Net ~~31,~~Loss ~~2015,~~Attributable weto ~~did~~Talon ~~not~~Real Estate ~~have~~Holding ~~any~~Corp. ~~off-balance~~to ~~sheet~~Funds ~~arrangements.~~from Operations

Inflation

	Year Ended December 31,
In thousands $ (except per share)	2016								2015
	Amount			Weighted Avg Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾			Amount			Weighted Avg Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾
Net loss attributable to TREHC	$	(4,997	)		17,027		(0.31	)	$	(4,479	)		16,620	$	(0.27	)

Adjustments:
Non-controlling interest Operating Partnership		(2,691	)		9,200		—			(2,417	)		9,200		—
Consolidated depreciation and amortization:		4,897			—		—			5,360			—		—
adjust for non-real estate depreciation		(5	)		—		—			(10	)		—		—
adjust for amortization to revenue		224			—		—			202			—		—
adjust for noncontrolling real estate owned depreciation		(108	)		—		—			(131	)		—		—
Net adjustments		2,317			9,200		—			3,004			9,200		—
Funds from operations applicable to common shares	$	(2,680	)		26,227		(0.12	)	$	(1,475	)		25,820	$	(0.06	)

AsReconciliation of ~~December~~Net ~~31,~~Loss ~~2015,~~Attributable ~~most of our leases required tenants~~ to ~~reimburse~~Talon usReal Estate ~~for~~Holding ~~a share of our operating expenses~~Corp. ~~As result, we are able~~ to ~~pass~~Adjusted onFunds ~~much~~from of any increases to our property operating expenses that might occur due to inflation by correspondingly increasing our expense reimbursement revenues. During 2015 and 2014, inflation did not have a material impact on our revenues or net income.Operations

Recent Accounting Pronouncements

	Year Ended December 31,
	2016								2015
Adjusted funds from operations	Amount			Weighted Avg Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾			Amount			Weighted Avg Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾
FFO available to common shares	$	(3,158	)		26,227		(0.12	)	$	(1,475	)		25,820	$	(0.06	)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		(166	)		—		—			103			—		—
Non-real estate depreciation		5			—		—			10			—		—
Amortization of deferred financing costs net of non-controlling real estate		617			—		—			1,194			—		—
Non-cash stock compensation charges		411			—		—			174			—		—

AFFO available to common shares	$	(2,291	)		26,227		(0.09	)	$	6			25,820	$	0.00

~~See~~(1) ~~Note~~Noncontrolling 3units toof the ~~consolidated~~Operating ~~financial~~Partnership ~~statements~~are exchangeable for cash, or at the Company's discretion, for common shares of stock on a one-for-one basis.

43(2) Net income is calculated on a per share basis. FFO and AFFO are calculated on a per share and unit basis.

~~Item~~Liquidity 8.and Capital Resources

~~Financial~~Liquidity ~~Statements~~is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and ~~Supplementary~~maintain ~~Data~~our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. We have incurred significant expenses related to operating as a public corporation, building and tenant improvements at our properties, and preparation for and execution of our acquisition strategy creating a cash shortfall from operations through December 31, 2016.

~~TALON~~We ~~REAL~~currently ~~ESTATE~~do ~~HOLDING~~not ~~CORP~~have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have insufficient cash flow from current operations to pursue our strategy without further financing. As of December 31, 2016, we had unrestricted cash of approximately $108,418 and current liabilities, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash.

~~Minneapolis, Minnesota~~-40-

~~CONSOLIDATED~~Table ~~FINANCIAL~~of ~~STATEMENTS~~Contents

~~TABLE~~We OFtherefore ~~CONTENTS~~will require additional capital and increased cash flow from future operations to fund our ongoing business. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our cash flows from operations are not sufficient to satisfy our operational or capital needs, we may be required to sell our real estate assets, cease our operations or alter our growth plans.

AsIn ofaddition, in 2017 and ~~for~~through the date ~~Years~~of ~~Ended~~this filing, several judgments have been entered against the Company in various legal proceedings related to the non-repayment of outstanding unsecured note obligations, as follows:

~~December~~· 31On February 27, ~~2015~~2017 a judgment was ordered against Talon Bren Road LLC and ~~2014~~Talon OP L.P. in the amount of $719,365

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Financial Statements
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Shareholders’ Equity (Deficit)	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Consolidated Financial Statements	F-6

On April 7, 2017, a judgment in the amount of $897,695 was ordered against Talon Real Estate Holding Corp and Talon O.P., LP.

44· On May 19, 2017, a judgment in the amount of $1,476,498 was ordered against the Company

~~REPORT~~Judgments OFagainst ~~INDEPENDENT~~the ~~REGISTERED~~borrower ~~PUBLIC~~in ~~ACCOUNTING~~excess of ~~FIRM~~$100,000 or against the guarantors of our loans in excess of $250,000 that remain unpaid after 30 days constitute an event of default under our 10301 Bren Road loan agreements, and judgments against the borrowers or guarantors of our loans in excess of $250,000 that remain unpaid after 60 days constitute an event of default under our 180 E. 5th Street loan. On June 23, 2017, the $719,365 judgment against Talon Bren Road LLC and Talon OP L.P. was paid from the proceeds of a refinancing described below.

ToOn April 13, 2017, the ~~Shareholders~~Company, ~~Audit~~together with ~~Committee~~its subsidiaries Talon OP and ~~Board~~Talon Bren Road, LLC (“TBR”), received written notice from Bell Bank (“Bell”) that an event of ~~Directors~~default has occurred with respect to that the Loan Agreement dated as of May 29, 2014 (the “Loan Agreement”) by and between Bell in its capacity as lender thereunder, and TBR, as the borrower thereunder (the “Notice”). The Company and Talon OP have guaranteed the payment and performance of TBR under the Loan Agreement pursuant to a Guaranty dated May 29, 2014 made by each guarantor in favor of Bell.

The Notice provides that (a) Bell demands immediate payment in full of the amount due under the Loan Agreement, which as of April 13, 2017 was $10,773,144 and (b) Bell may exercise its rights to seek the appointment of a receiver to take control of TBR’s property located at 10301 Bren Road West, Minnetonka, MN and commence a foreclosure action to foreclose its lien on the property. On March 27, 2017, Talon ~~Real~~Bren ~~Estate~~Road, ~~Holding~~LLC also ~~Corp~~received a notice of default under the terms of our second mortgage agreement, the outstanding balance of which was $2 million as of the date of the filing of this report.

~~Minneapolis~~On June 21, MN2017, TBR LLC, entered into a transaction to refinance its first and second mortgages on the property via a issuance of a Promissory Note Secured by a Mortgage and Collateral Security Agreement with MCREIF SubREIT LLC, in the principal amount of $15.1 million. The Note bears interest at a rate equal to 9.5% per annum and has an initial maturity date of June 1, 2018. The Note is subject to a balloon payment upon maturity in the amount of $15.2 million, which is comprised of the unpaid principle balance of $15.1 million and the unpaid interest only payment of $0.1 million. The proceeds of the refinancing were used to redeem amounts outstanding under the first, second and third mortgages totaling $14.0 million, to pay the outstanding judgment against the property described above, and to pay closing costs.

We have audited the accompanying consolidated balance sheets of Talon Real Estate Holding Corp. as of December 31, 2015 and 2014, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.-41-

WeTable ~~conducted our audits in accordance with the standards~~ of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.Contents

InOn ~~our~~April ~~opinion~~8, 2017, the ~~consolidated~~Company ~~financial~~had ~~statements~~a ~~referred~~balloon payment toof ~~above~~$4.3 ~~present~~million ~~fairly,~~due inon ~~all~~the ~~material~~mortgage ~~respects,~~one ~~the~~of ~~financial~~its ~~position~~properties. ofThe ~~Talon~~Company ~~Real~~expects ~~Estate~~to ~~Holding~~refinance ~~Corp.~~this property but as of ~~December~~the date ~~31,~~of ~~2015~~this ~~and~~report ~~2014~~has ~~and~~been ~~the~~unable ~~results~~to ofdo ~~their~~so. ~~operations~~Failure ~~and~~to ~~cash~~refinance ~~flows~~would ~~for~~further impact our liquidity, and would allow the ~~years~~lender to ~~then~~exercise ~~ended~~its rights under the loan agreement, inincluding ~~conformity~~acceleration ~~with~~of ~~U.S.~~the ~~generally~~mortgage ~~accepted~~note ~~accounting~~and ~~principles~~initiation of a foreclosure proceeding.

~~The~~In ~~accompanying~~December ~~consolidated~~2018, ~~financial statements have been prepared assuming that~~ the ~~company~~lender ~~will~~foreclosed and ~~continue~~conducted as a ~~going~~sheriff’s ~~concern~~sale. As ~~discussed~~Pursuant ~~in Note 17~~ to ~~the~~Minnesota ~~consolidated financial statements~~law, ~~the~~a ~~company~~property ~~has~~foreclosed ~~suffered~~upon ~~recurring~~in ~~losses~~this ~~from~~manner ~~operations and~~ is ~~dependent~~subject ~~on the success of future capital raises or profitable acquisitions of additional investment properties~~ to ~~sustain~~a ~~operations~~six (6) ~~through~~month ~~at least December 31, 2016~~redemption. ~~These~~The ~~factors~~Company ~~raise~~is ~~substantial~~under ~~doubt~~contract ~~about its ability~~ to ~~continue~~sell asone a(1) ~~going~~of ~~concern. Management’s~~the ~~plans~~two in(2) ~~regard~~properties toand ~~these~~engaged ~~matters are also described~~ in ~~Note~~refinancing ~~17. The consolidated financial statements do not include any adjustments that might result from~~ the ~~outcome of this uncertainty~~second property.

~~/s/~~If ~~Baker~~we ~~Tilly~~are ~~Virchow~~unable ~~Krause~~to continue as a going concern, ~~LLP~~we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

~~Minneapolis~~Our long-term liquidity requirements consist primarily of funds to pay for past due and scheduled debt maturities, MNnon-recurring capital expenditures that need to be made periodically and continued expansion of our business through acquisitions. Although we plan to aggressively pursue acquisitions to grow our business, there is no assurance that we will be able to acquire additional properties in the future.

~~April~~Since 6our available cash and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and are not expected to provide us with adequate liquidity for the foreseeable future, ~~2016~~we anticipate that we will undertake future debt or equity financing or asset sales. Additional financing or asset sales are necessary for our company to continue as a going concern.

FIn the future, we anticipate using a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financing (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-1level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities. Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.

~~TALON~~Outstanding ~~REAL ESTATE HOLDING CORP.~~Indebtedness

~~CONSOLIDATED~~5130 ~~BALANCE~~LLC, ~~SHEETS~~an entity in which our Operating Partnership owns a 49% interest and that owns an industrial complex located in the Minneapolis-St. Paul metropolitan area, is party to a loan agreement secured by such industrial complex. The loan agreement provides for two term loans, the A loan and the B loan. The term loans had a balloon payment due on April 8, 2017 and is past due. The Company expects to refinance this loan but as of the filing of this document has been unable to do so.

~~December~~TBR, an entity through which our Operating Partnership acquired the property located at 10301 Bren Road West, Minnetonka, MN on May 29, 2014, is party to a loan agreement secured by such property. The loan agreement contains certain financial and non-financial events of default. On February 27, 2017, a judgment in the amount of $719,365 was ordered against TBR and Talon O.P. LP which constitutes a non-financial event of default under the loan agreement. On March 31, ~~2015~~2017 the Company received a notice from the lender stating that the Company was in nonmonetary default on the loan agreement. On June 21, 2017, TBR entered into a transaction to refinance its first and ~~2014~~second mortgages on the property via issuance of a Promissory Note Secured by a Mortgage and Collateral Security Agreement with MCREIF SubREIT LLC, in the principal amount of $15.1 million. The Note bears interest at a rate equal to 9.5% per annum and has an initial maturity date of June 1, 2018.

	2015		2014 (as revised - see note 15)
ASSETS
Land and improvements	$	8,165,000	$	8,115,000
Building and improvements		53,285,277		42,578,545
Furniture and equipment		28,864		28,864
Total property and equipment		61,479,141		50,722,409
Less: accumulated depreciation		(5,881,183)		(3,184,632)
Net property & equipment		55,597,958		47,537,777
Cash		340,385		147,157
Rents and other receivables, net		375,351		471,490
Prepaid expenses and other assets		158,284		77,847
Restricted escrows & reserves		2,139,180		1,893,652
Deferred financing costs, net		969,527		1,135,977
Deferred leasing costs, net		3,035,853		1,083,274
Intangible assets, net		7,742,145		10,422,224
TOTAL ASSETS	$	70,358,683	$	62,769,398
LIABILITIES
Notes payable	$	51,286,384	$	49,287,723
Notes payable - related party		500,000		500,000
Accounts payable		5,406,648		1,947,481
Tenant improvement allowance		7,760,995		-
Accrued expenses and other liabilities		1,453,078		1,226,786
Tenant security deposits		166,208		176,720
Deferred rent revenue		289,034		186,701
Prepaid rent		447,773		195,163
Accrued interest		528,129		278,457
Below-market leases, net		266,228		438,041
Mandatorily redeemable Operating Partnership preferred units		3,000,000		3,000,000
Total Liabilities		71,104,477		57,237,072
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares outstanding at $.001 par value; authorized 10,000,000 shares; none issued or outstanding as of both December 31, 2015 and 2014		-		-
Common shares outstanding at $.001 par value; authorized 90,000,000 shares; 17,057,680 issued and outstanding as of December 31, 2015 and 16,743,522 as of December 31, 2014		17,057		16,743
Additional paid in capital		1,850,382		1,101,726
Accumulated loss		(9,218,803)		(4,739,689)
Total Talon Real Estate Holding Corp. shareholders' equity (deficit)		(7,351,364)		(3,621,220)
Noncontrolling interests - Operating Partnership; 9,200,001 common units issued and outstanding as of December 31, 2015 and December 31, 2014		8,109,449		10,526,904
Noncontrolling interests - consolidated real estate entities		(1,503,879)		(1,373,358)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(745,794)		5,532,326
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)	$	70,358,683	$	62,769,398

-42-

~~See~~Table ~~accompanying~~of ~~notes to consolidated financial statements.~~Contents

F-Talon First Trust, LLC, an entity through which our Operating Partnership acquired the property located at 180 E. Fifth Street St. Paul, MN on July 2, 2014, is party to a loan agreement secured by such property. On January 27, 2017 we completed the refinance of this loan. The new loan, in the principal amount of $51,600,000 matures January 26, 2018 and is secured by the property, an assignment of lease and rents, 100% of the membership and ownership interests in Talon OP, L.P., and other collateral as described in the loan agreement. The following table summarizes the Company’s notes payable as of December 31, 2016 and 2015:

~~TALON~~In ~~REAL~~June ~~ESTATE~~2017, ~~HOLDING~~First ~~CORP~~Trust was sold 100% for Operating Units of First Capital Operating Partnership, LP, a subsidiary of FCREIT, Inc., a Maryland corporation operating as a nontraded REIT.

~~CONSOLIDATED~~The ~~STATEMENTS~~following OFtable ~~OPERATIONS~~sets forth information regarding our 5 largest tenants as of December 31, 2016.

For the Years ended December 31, 2015 and 2014

Property Location⁽¹⁾	Tenant Industry	Primary Use	Lease Expiration		Approx. Total Leased Square Feet		Percentage of Company's Rentable Square Feet			Base Rent for the Year Ended December 31, 2016		Percentage of Company’s Total Base Rent for the Year Ended December 31, 2016
180 E 5^th Street, St. Paul, MN	Health Care	Office	4/30/2023	⁽³⁾		119,490		12	%	$	1,829,284		23	%
180 E 5^th Street, St. Paul, MN	Government	Office	5/31/2020			89,130		9	%	$	1,410,843		19	%
180 E 5^th Street, St. Paul, MN⁽²⁾	Retail	Office	3/31/2020			102,577		10	%	$	1,274,453		16	%
5130 Industrial St, Maple Plain, MN	Construction	Industrial	2/28/2021			59,500		6	%	$	225,628		3	%
1350 Budd Ave, Maple Plain, MN	Construction	Industrial	2/28/2018			29,903		3	%	$	106,517		1	%

	2015		2014 (as revised- see note 15)
REVENUE
Rent	$	7,532,117	$	4,083,715
Tenant reimbursements		3,739,796		2,001,561
Other income		447,798		273,410
Total Revenue		11,719,711		6,358,686
EXPENSES
General & administrative		489,557		275,850
Salary and compensation		755,176		1,191,542
Professional		774,593		364,666
Property operating expenses		5,086,582		2,654,753
Real estate taxes & insurance		1,652,025		957,638
Depreciation and amortization		5,359,556		2,845,029
Total Expenses		14,117,489		8,289,478
Operating Loss		(2,397,778)		(1,930,792)
Interest expense		(4,629,312)		(1,975,994)
NET LOSS		(7,027,090)		(3,906,786)
Net loss attributable to noncontrolling interest - Operating Partnership		2,417,455		971,916
Net loss attributable to noncontrolling interests - consolidated real estate entities		130,521		162,005
NET LOSS ATTRIBUTABLE TO TALON REAL ESTATE HOLDING CORP.	$	(4,479,114)	$	(2,772,865)
Loss per common share basic and diluted	$	(0.27)	$	(0.17)

(1)

The two properties located in Maple Plain, MN lease approximately 15% of the Company’s rentable space and account for approximately 5% of the Company’s total base rent revenues for the year ended December 31, 2016. The property located in Minnetonka, MN leases approximately 16% of the Company’s rentable space and accounts for approximately 18% of the Company’s total base rent revenues for the year ended December 31, 2016. No major tenants are located at the property in Minnetonka, MN. The property located in St. Paul, MN leases approximately 41% of the Company’s rentable space and accounts for approximately 77% of the Company’s total base rent revenues for the year ended December 31, 2016.

~~See~~(2) ~~accompanying~~On ~~notes~~March to7, ~~consolidated~~2017, ~~financial~~tenant ~~statements~~filed for Chapter 11 bankruptcy protection from its creditors.

F-(3) Five-year lease extension signed in January 2017.

~~TALON~~(4) ~~REAL~~In ~~ESTATE~~June ~~HOLDING~~2018 ~~CORP~~First Trust was sold 100% for Operating Units of First Capital Operating Partnership, LP, a subsidiary of FCREIT, Inc., a Maryland corporation operating as a nontraded REIT.

~~CONSOLIDATED~~The ~~STATEMENTS~~future OFsquare ~~SHAREHOLDERS’~~feet ~~EQUITY~~expiring ~~(DEFICIT)~~for the current leases in place as of December 31, 2016 are as follows:

~~For the~~ Years ~~Ended~~ending December 31, ~~2015 and 2014~~

		Number of Common Shares	Common Shares ($)		Additional Paid In Capital			Accumulated Loss			Total Controlling interests		Number of OP Common Units		Operating Partnership Common Units ($)			Non-controlling Interests in Real Estate		Total Equity
			5130 Industrial St			1350 Budd Ave				10301 Bren Rd			180 E 5th St
December 31, 2013		15,762,222	$	15,762	$	449,873		$	(1,966,824)		$	(1,501,189)	-		$	-		$	(1,211,353)	$	(2,712,542)
			Maple Plain, MN			Maple Plain, MN				Minnetonka, MN			St. Paul, MN				Total
Operating Partnership common units issued, net of issuance costs		-		-		-			-			-	9,200,001			11,498,820			-		11,498,820
	2017			17,841			29,203				—			25,049				72,793
Shares issued as stock compensation		981,300		981		651,853			-			652,834	-			-			-		652,834
	2018			—			—				—			20,981				20,981
Net loss		-		-		-			(2,772,865)			(2,772,865)	-			(971,916)			(162,005)		(3,906,786)
	2019			—			—				164,472			—				164,472
December 31, 2014 (as revised - see note 15)		16,743,522	$	16,743	$	1,101,726		$	(4,739,689)		$	(3,261,220)	9,200,001		$	10,526,904		$	(1,373,358)	$	5,532,326
	2020			—			—				—			—				0
Forfeited restricted shares		(145,842)		(146)		146			-			-	-			-			-		-
	2021			59,500			—				—			—				59,500
Shares issued as stock compensation		-		-		173,970			-			173,970	-			-			-		173,970
	Thereafter			—			—				—			—				0
Shares issued for guarantee of note payable		460,000		460		574,540			-			575,000	-			-			-		575,000
				77,341			29,903				164,472			46,030				317,746
Net loss		-		-		-			(4,479,114)			(4,479,114)	-			(2,417,455)			(130,521)		(7,027,090)
December 31, 2015		17,057,680	$	17,057	$	1,850,382		$	(9,218,803)		$	(7,351,364)	9,200,001		$	8,109,449		$	(1,503,879)	$	(745,794)

~~See accompanying notes to consolidated financial statements.~~-43-

~~F-4~~Table of Contents

~~TALON~~Off ~~REAL~~Balance ~~ESTATE~~Sheet ~~HOLDING CORP.~~Arrangements

~~CONSOLIDATED~~As ~~STATEMENTS~~of OFDecember ~~CASH~~31, ~~FLOWS~~2016, we did not have any off-balance sheet arrangements.

~~For the Years Ended December 31, 2015 and 2014~~Inflation

	For the Years Ended December 31,
	2015		2014 (as revised – see note 15)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(7,027,090)	$	(3,906,786)
Adjustments to reconcile net loss to net cash flows from operating assets and liabilities:
Depreciation and amortization		5,561,843		2,994,039
Amortization of deferred financing		1,200,816		213,990
Stock-based compensation expense		173,970		656,623
Provision for doubtful accounts		100,546		5,784
Changes in operating assets and liabilities:
Rents and other receivables		(45,444)		(468,360)
Deferred rents receivable		-		35,824
Prepaid expenses and other assets		9,563		147,996
Deferred leasing costs		(95,200)		-
Accounts payable		192,525		1,130,960
Accrued expenses and other liabilities		(26,858)		122,788
Tenant security deposits		(10,512)		4,441
Deferred rent revenue		102,333		186,701
Prepaid rent		252,610		(750,887)
Accrued interest		249,672		273,777
Net cash flows from operating activities		638,774		646,890
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases or improvements of land, building, intangible assets		(1,331,322)		(626,733)
Deposits to restricted escrows and reserves		(2,966,867)		(1,846,978)
Payments from restricted escrows and reserves		2,721,339		1,273,489
Cash received upon settlement of acquisition		-		58,472
Net cash flows from investing activities		(1,576,850)		(1,141,750)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		3,000,000		620,000
Principal payments on notes payable		(1,483,273)		(456,536)
Proceeds of related party notes		-		600,000
Principal payments on related party notes		-		(200,000)
Deposits or cash paid for financing costs		(385,423)		-
Operating partnership and common stock issuance costs		-		(4,969)
Net cash flows from financing activities		1,131,304		558,495
Net Change in Cash		193,228		63,635
CASH - BEGINNING OF PERIOD		147,157		83,522
CASH - END OF PERIOD	$	340,385	$	147,157
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Real estate assets acquired through the issuance of operating partnership units and assumption of debt	$	-	$	58,935,611
Escrow and reserves funded through the issuance of debt		-		1,129,691
Purchases of building and land improvements included in accounts payable and tenant improvement allowance		9,425,410		-
Leasing and finance fees included in accounts payable and other liabilities		2,337,311		849,120
Issuance of common stock included in financing costs		575,000		-
Accounts payable converted to notes payable (see Note 5)		481,934		-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest on mortgages and preferred Operating Partnership preferred units	$	3,178,825	$	1,508,671

As of December 31, 2016, most of our leases required tenants to reimburse us for a share of our operating expenses. As result, we are able to pass on much of any increases to our property operating expenses that might occur due to inflation by correspondingly increasing our expense reimbursement revenues. During 2016 and 2015, inflation did not have a material impact on our revenues or net income.

~~See~~Recent ~~accompanying~~Accounting ~~notes to consolidated financial statements.~~Pronouncements

~~F-5~~See Note 3 to the consolidated financial statements.

~~TALON~~Item ~~REAL~~8. ~~ESTATE~~Financial ~~HOLDING~~Statements ~~CORP.~~and Supplementary Data

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~-44-

AsTable of ~~and for the Years Ended December 31, 2015 and 2014~~Contents

~~NOTE~~TALON 1REAL –ESTATE ~~ORGANIZATION~~HOLDING ~~AND BASIS OF PRESENTATION~~CORP.

~~Organization~~Minneapolis, Minnesota

~~Talon~~CONSOLIDATED FINANCIAL Real Estate Holding Corp. (“TREHC”) previously established an Operating Partnership (“Talon OP”) and transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units. As the sole general partner of Talon OP we have the exclusive power to manage and conduct the business and affairs for the operating partnership. TREHC owned approximately 65% and 64.5% of the Operating Partnership as of December 31, 2015 and December 31, 2014, respectively. The Operating Partnership owned 49% of 5130 Industrial Street, LLC, 100% of Talon Bren Road, LLC, 100% of Talon First Trust, LLC, and 100% of Talon RE as of December 31, 2015. Talon Bren Road, LLC, and Talon First Trust, LLC both limited liability companies organized under the laws of the state of Delaware, were formed on May 9, 2014 and April 21, 2014, respectively, to purchase real estate. Talon Real Estate, LLC (“Talon RE”) was incorporated in the state of Minnesota on December 20, 2012 and began operations in 2013 for the purpose of acquiring real estate properties.STATEMENTS

~~Basis~~TABLE ofOF ~~Presentation~~CONTENTS

~~The~~As ~~accompanying~~of ~~consolidated~~and for ~~financial~~the ~~statements~~Years ~~have~~Ended ~~been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”).~~

~~The~~December ~~accompanying~~31, 2016 ~~consolidated financial statements include the accounts of TREHC~~ and ~~its~~2015 interest in the Operating Partnership. The limited partners in the Operating Partnership have a redemption option that they may exercise. Upon exercise of the redemption option by the limited partners, the Company has the choice of redeeming the limited partners' interests ("Units") for TREHC common shares of stock on a one-for-one basis, or making a cash payment to the unit holder. The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units subject to volume restrictions.

NOTE 2 – INVESTMENT IN REAL ESTATE PROPERTIES AND ENTITIES

	Page
Reports of Independent Registered Public Accounting Firms	46
Consolidated Financial Statements
Consolidated Balance Sheets	48
Consolidated Statements of Operations	49
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)	50
Consolidated Statements of Cash Flows	51
Notes to Consolidated Financial Statements	52

The Company acquired real estate property through its subsidiary, Talon First Trust, LLC, located at 180 E. Fifth Street, St. Paul, MN on July 2, 2014. The building is primarily leased to tenants for commercial use. The property totals 656,875 net rentable square feet. As of December 31, 2015, the Company had tenants occupying approximately 62% of the rentable space. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease (see Note 9).-45-

~~The~~Table ~~Company acquired real estate property through its subsidiary, Talon Bren Road, LLC, located on 20 acres~~ of land at 10301 Bren Road West, Minnetonka, MN on May 29, 2014. This property is primarily leased to tenants who are wholesale product sales representatives. These leases are subject to a master lease agreement entered into between Talon Bren Road, LLC and Upper Midwest Allied Gifts Association, Inc., a Minnesota nonprofit corporation (“UMAGA”). This property has 164,472 of net rentable square feet. As of December 31, 2015, the Company had 100% of the rentable space leased.Contents

~~The~~REPORT ~~Company~~OF ~~owns~~INDEPENDENT ~~and~~REGISTERED ~~operates~~PUBLIC ACCOUNTING ~~the following real estate properties through its subsidiary, 5130 LLC:~~FIRM

~~5130~~To ~~Industrial~~the ~~Street,~~Board ~~Maple~~of ~~Plain,~~Directors MNand Shareholders

~~1350~~Talon ~~Budd~~Real ~~Ave,~~Estate ~~Maple~~Holding ~~Plain,~~Corp. MNand subsidiaries

~~F-6~~Minneapolis, MN

~~TALON~~We ~~REAL~~have ~~ESTATE~~audited ~~HOLDING~~the ~~CORP~~accompanying consolidated balance sheet of Talon Real Estate Holding Corp. and its subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of operations, changes in shareholders’ equity (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

~~NOTES~~We TOconducted ~~CONSOLIDATED~~our ~~FINANCIAL~~audit ~~STATEMENTS~~in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

AsIn ofour ~~and~~opinion, ~~for~~the consolidated financial statements referred to above present fairly, in all material respects, the ~~Years~~financial ~~Ended~~position of Talon Real Estate Holding Corp. as of December 31, ~~2015~~2016 and ~~2014~~the results of their operations and cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

~~NOTE~~The 2accompanying –consolidated ~~INVESTMENT~~financial statements INhave ~~REAL~~been ~~ESTATE~~prepared ~~PROPERTIES~~assuming ~~AND~~that ~~ENTITIES~~the ~~(continued)~~Company will continue as a going concern. As discussed in Note 16 to the consolidated financial statements, the Company has suffered recurring losses from operations and has defaulted on the terms of certain of its secured and unsecured loan agreements. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 16. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~The~~/s/ ~~properties are primarily leased to tenants for mixed commercial and industrial usage. The properties have a combined 171~~Turner,~~639~~ ~~net~~Stone ~~rentable~~& ~~square feet. As of December 31~~Company, ~~2015, the Company had tenants occupying approximately 85% of the rentable space~~L.L.P.

~~NOTE~~Dallas, ~~3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~Texas

~~Accounting~~April ~~Estimates~~17, 2019

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant items subject to such estimates and assumptions include determination of the useful life of property and other long-~~lived assets, valuation and impairment analysis of property and other long~~46-~~lived assets, and valuation of the allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.~~

~~Principles~~Table of ~~Consolidation~~Contents

WeREPORT ~~evaluate~~OF ~~the~~INDEPENDENT ~~need~~REGISTERED toPUBLIC ACCOUNTING consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. The accompanying consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership, and all subsidiaries in which it maintains a controlling interest. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC. All significant intercompany balances have been eliminated in consolidation.FIRM

~~Cash~~To the Shareholders, Audit Committee and Board of Directors

~~The~~Talon ~~Company~~Real ~~considers~~Estate ~~short-term~~Holding ~~investments with original maturities of 90 days or less to be cash equivalents~~Corp. ~~The Company believes it is not exposed to any significant credit risk on cash.~~

~~Restricted~~Minneapolis, ~~Escrows and Reserves~~MN

~~The~~We ~~Company~~have isaudited ~~required~~the toaccompanying ~~hold~~consolidated ~~cash~~balance insheets of ~~restricted~~Talon ~~escrow~~Real ~~accounts~~Estate ~~for~~Holding ~~insurance,~~Corp. ~~real~~as ~~estate~~of ~~taxes~~December 31, 2015, and athe ~~replacement~~related ~~reserve.~~consolidated ~~The~~statements ~~escrows~~of ~~are~~operations, ~~used~~changes toin ~~pay~~shareholders’ equity ~~periodic~~(deficit) ~~charges~~and ofcash ~~real~~flows ~~estate~~for ~~taxes~~the ~~and~~year ~~assessments,~~then ~~tenant~~ended. ~~improvements,~~These ~~and~~consolidated ~~leasing~~financial ~~commissions.~~statements ~~The~~are ~~balances~~the inresponsibility of the Company's ~~escrow~~management. ~~accounts~~Our ~~were~~responsibility ~~$2,139,180~~is ~~and~~to ~~$1,893,652~~express asan ofopinion ~~December~~on ~~31,~~these ~~2015~~consolidated ~~and~~financial ~~2014,~~statements ~~respectively~~based on our audit.

~~F-7~~We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

~~TALON~~In ~~REAL~~our ~~ESTATE~~opinion, ~~HOLDING~~the ~~CORP~~consolidated financial statements referred to above present fairly, in all material respects, the financial position of Talon Real Estate Holding Corp. as of December 31, 2015 and the results of their operations and cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

~~NOTES~~The TOaccompanying ~~CONSOLIDATED~~consolidated ~~FINANCIAL~~financial ~~STATEMENTS~~statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 16 to the consolidated financial statements, the Company has suffered recurring losses from operations and as described in Note 16, has defaulted on the terms of certain of its secured and unsecured loan agreements. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 16. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As/s/ ofBaker ~~and~~Tilly ~~for~~Virchow ~~the Years Ended December 31~~Krause, ~~2015 and 2014~~LLP

~~NOTE~~Minneapolis, ~~3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~MN

~~Rents~~April ~~and~~6, ~~other Receivables~~2016

Rents receivable and deferred rent are recorded at their estimated net realizable value. The Company follows a policy of providing an allowance for doubtful accounts, which is based on a review of outstanding receivables, historical collection information, and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off. Receivables have been reduced by an allowance for doubtful accounts of $93,560 and $10,784 as of December 31, 2015 and 2014, respectively.-47-

~~Revenue~~Table ~~Recognition~~of Contents

~~Base~~TALON ~~rental~~REAL ~~income~~ESTATE isHOLDING ~~recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions~~CORP. Differences between rent income earned and base rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable. When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.

~~Tenant~~CONSOLIDATED BALANCE recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses. An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.SHEETS

~~Deferred~~As ~~Leasing~~of ~~Costs~~December 31, 2016 and ~~Tenant Allowance~~2015

Direct and indirect costs, including estimated internal costs and leasing commissions, associated with the leasing of real estate investments owned by the Company are capitalized as deferred leasing costs and amortized on a straight-line basis over the term of the related lease as amortization expense. Unamortized costs are charged to expense upon the early termination of the lease. Costs associated with unsuccessful leasing opportunities are expensed.

	2016			2015
ASSETS
Land and improvements	$	8,302,447		$	8,165,000
Building and improvements		45,552,308			53,285,277
Furniture and equipment		30,571			28,864
Total property and equipment		53,885,326			61,479,141
Less: accumulated depreciation		(8,506,290	)		(5,881,183	)
Net property & equipment		45,379,036			55,597,958

Cash		108,418			340,385
Rents and other receivables, net		428,176			375,351
Prepaid expenses and other assets		104,855			158,284
Restricted escrows & reserves		3,001,232			2,139,180
Deferred leasing costs, net		2,003,221			3,035,853
Intangible assets, net		5,465,603			7,742,145
TOTAL ASSETS	$	56,490,541		$	69,389,156

LIABILITIES
Notes payable	$	52,640,239		$	51,286,384
Less: unamortized deferred financing costs		(496,063	)		(969,527	)
Notes payable, net		52,144,176			50,316,857
Notes payable - related party		809,472			500,000
Accounts payable		6,167,516			5,406,648
Tenant improvement allowance		—			7,760,995
Accrued expenses and other liabilities		854,743			1,453,078
Tenant security deposits		167,242			166,208
Deferred rent revenue		121,710			289,034
Prepaid rent		175,758			447,773
Accrued interest		1,029,911			528,129
Below-market leases, net		150,638			266,228
Mandatorily redeemable Operating Partnership preferred units		3,000,000			3,000,000
Total Liabilities		64,621,166			70,134,950

COMMITMENTS AND CONTINGENCIES (NOTE 8)

SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares outstanding at $.001 par value; authorized 10,000,000 shares; none issued or outstanding as of both December 31, 2016 and 2015		—			—
Common shares outstanding at $.001 par value; authorized 90,000,000 shares; 17,135,981 issued and outstanding as of December 31, 2016 and 17,057,680 as of December 31, 2015		17,135			17,057
Additional paid in capital		2,261,411			1,850,382
Accumulated loss		(14,215,704	)		(9,218,803	)
Total Talon Real Estate Holding Corp. shareholders' equity (deficit)		(11,937,158	)		(7,351,364	)
Noncontrolling interests - Operating Partnership; 9,200,001 common units issued and outstanding as of December 31, 2016 and December 31, 2015		5,418,810			8,109,449
Noncontrolling interests - consolidated real estate entities		(1,612,277	)		(1,503,879	)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(8,130,625	)		(745,794	)
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)	$	56,490,541		$	69,389,156

InSee ~~leasing~~accompanying ~~tenant~~notes ~~space, the Company may provide funding~~ to ~~the~~consolidated financial ~~lessee through a tenant allowance~~statements. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance as building improvements and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. For tenant allowances committed at lease inception and recorded as building improvements but not yet performed or completed, the corresponding liability will be recorded as tenant improvement allowance payables. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the tenant allowance is considered to be a lease incentive and is capitalized as a deferred leasing cost and is amortized over the lease term as a reduction of rental revenue on a straight-line basis. The Company had amortization expense for tenant improvements of $1,152,211 and $543,283 year ended December 31, 2015 and 2014, respectively. The Company had amortization expense for leasing costs of $337,704 and $146,317 year ended December 31, 2015 and 2014, respectively. The Company had accumulated amortization for tenant allowances of $1,826,901 and $674,691 as of December 31, 2015 and 2014, respectively. As of December 31, 2015, the Company had deferred leasing costs and tenant allowances recorded as building improvements of $11,503,791 that did not have amortization expense in the year ended December 31, 2015 due to lease terms that have not commenced as of that date.

F-848-

~~TALON~~Table ~~REAL~~of ~~ESTATE HOLDING CORP.~~Contents

~~NOTES~~TALON TOREAL ~~CONSOLIDATED~~ESTATE ~~FINANCIAL STATEMENTS~~HOLDING CORP.

AsCONSOLIDATED STATEMENTS ofOF ~~and for the Years Ended December 31, 2015 and 2014~~OPERATIONS

~~NOTE~~For 3the –Years ended ~~SUMMARY~~December OF31, ~~SIGNIFICANT~~2016 ~~ACCOUNTING~~and ~~POLICIES (continued)~~2015

Derivative Instruments

	2016			2015
REVENUE
Rent	$	7,268,752		$	7,532,117
Tenant reimbursements		3,568,757			3,739,796
Other income		280,985			447,798
Total Revenue		11,118,494			11,719,711

EXPENSES
General & administrative		686,458			489,557
Salary and compensation		992,568			755,176
Professional fees		1,116,079			774,593
Property operating expenses		4,581,398			5,086,582
Real estate taxes & insurance		1,776,664			1,652,025
Depreciation and amortization		4,897,225			5,359,556
Total Expenses		14,050,392			14,117,489

Operating Loss		(2,931,898	)		(2,397,778	)

Interest expense		(4,864,040	)		(4,629,312	)

NET LOSS		(7,795,938	)		(7,027,090	)

Net loss attributable to noncontrolling interest - Operating Partnership		2,690,639			2,417,455
Net loss attributable to noncontrolling interests - consolidated real estate entities		108,398			130,521

NET LOSS ATTRIBUTABLE TO TALON REAL ESTATE HOLDING CORP.	$	(4,996,901	)	$	(4,479,114	)

Loss per common share basic and diluted	$	(0.29	)	$	(0.27	)

~~The~~See ~~Company~~accompanying ~~records~~notes all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to ~~designate~~consolidated financial ~~a derivative in a hedging relationship and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting~~statements. If the Company does not apply hedge accounting, all changes in the fair value of derivatives are recognized directly in earnings in the period of change. Currently, the Company has not elected hedge accounting treatment and all changes in fair value of the Company’s derivatives are recognized in current period earnings.

~~Deferred Financing Costs~~-49-

~~Costs~~Table incurred in connection with obtaining financing are capitalized and are being amortized on a straight-line basis over the financing term and are included in interest expense. The Company had amortization expense of $1,200,816 and $213,990 for the years ended December 31, 2015 and 2014, respectively. The Company had accumulated amortization of $1,502,895 and $302,080 as of December 31, 2015 and 2014, respectively. As of December 31, 2015, the Company had incurred deferred financing costs of $139,021 that did not have amortization expense in the year ended December 31, 2015 as the financings had not closed as of that date.Contents

~~Real~~TALON ~~Estate~~REAL ~~Property~~ESTATE ~~and~~HOLDING ~~Fixed Assets~~CORP.

~~Investment~~CONSOLIDATED inSTATEMENTS ~~real~~OF ~~estate~~CHANGES ~~and~~IN SHAREHOLDERS’ ~~fixed~~EQUITY assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (~~including land, buildings and personal property~~DEFICIT) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values. Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Management’s fair value assessment includes the use of readily accepted fair value techniques such as discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis.

~~The~~For ~~Company finalized~~ the ~~purchase~~Years ~~price~~Ended ~~fair value allocation of the First Trust acquisition during the year ended~~ December 31, ~~2015~~ 2016 and ~~has recorded certain measurement period adjustments that have impacted the previously reported 2014 consolidated financial statements.~~2015

Depreciation is provided using the straight-line method over the estimated useful life of the assets for buildings and land improvements, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

	Number of Common Shares			Common Shares ($)			Additional Paid In Capital		Accumulated Loss			Total Controlling interests			Number of OP Common Units		Operating Partnership Common Units ($)			Non-controlling Interests in Real Estate			Total Equity
December 31, 2014		16,743,522		$	16,743		$	1,101,726	$	(4,739,689	)	$	(3,621,220	)		9,200,001	$	10,526,904		$	(1,373,358	)	$	5,532,326
Forfeited restricted shares		(145,842	)		(146	)		146		—			—			—		—			—			—
Shares issued as stock compensation		—			—			173,970		—			173,970			—		—			—			173,970
Shares issued for guarantee of note payable		460,000			460			574,540		—			575,000			—		—			—			575,000
Net loss		—			—			—		(4,479,114	)		(4,479,114	)		—		(2,417,455	)		(130,521	)		(7,027,090	)
December 31, 2015		17,057,680			17,057			1,850,382		(9,218,803	)		(7,351,364	)		9,200,001		8,109,449			(1,503,879	)		(745,794	)
Forfeited restricted shares		(341,699	)		(342			342		—			—			—		—			—			—
Shares issued as stock compensation		420,000			420			410,687		—			411,107			—		—			—			411,107
Net loss		—			—			—		(4,996,901	)		(4,996,901	)		—		(2,690,639	)		(108,398	)		(7,795,938	)
December 31, 2016		17,135,981		$	17,135		$	2,261,411	$	(14,215,704	)	$	(11,937,158	)		9,200,001	$	5,418,810		$	(1,612,277	)	$	(8,130,625	)

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

See accompanying notes to consolidated financial statements.

F-950-

~~TALON~~Table ~~REAL~~of ~~ESTATE HOLDING CORP.~~Contents

~~NOTES~~TALON TOREAL ~~CONSOLIDATED~~ESTATE ~~FINANCIAL STATEMENTS~~HOLDING CORP.

AsCONSOLIDATED ofSTATEMENTS ~~and~~OF ~~for~~CASH ~~the Years Ended December 31, 2015 and 2014~~FLOWS

~~NOTE~~For 3the –Years ~~SUMMARY~~Ended OFDecember ~~SIGNIFICANT~~31, ~~ACCOUNTING~~2016 and ~~POLICIES (continued)~~2015

Real Estate Property and Fixed Assets (continued)

	For the Years Ended December 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(7,795,938	)	$	(7,027,090	)
Adjustments to reconcile net loss to net cash flows from operating assets and liabilities:
Depreciation and amortization		5,119,081			5,561,843
Amortization of deferred financing		623,549			1,200,816
Stock-based compensation expense		411,107			173,970
Provision for doubtful accounts		36,485			100,546
Changes in operating assets and liabilities:
Rents and other receivables		(89,310	)		(45,444	)
Prepaid expenses and other assets		53,429			9,563
Deferred leasing costs		—			(95,200	)
Accounts payable		2,075,986			192,525
Accrued expenses and other liabilities		(252,795	)		(26,858	)
Tenant security deposits		1,034			(10,512	)
Deferred rent revenue		(167,324	)		102,333
Prepaid rent		(272,015	)		252,610
Accrued interest		1,028,756			249,672
Net cash flows (used in) provided by operating activities		772,045			638,774

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases or improvements of land, building, intangible assets		29,733			(1,331,322	)
Deposits to restricted escrows and reserves		(2,834,812	)		(2,966,867	)
Payments from restricted escrows and reserves		1,972,760			2,721,339
Net cash flows provided by investing activities		(891,785	)		(1,576,850	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		1,008,354			3,000,000
Principal payments on notes payable		(943,171	)		(1,483,273	)
Principal payments on notes payable, related party		(27,325	)		—
Deposits or cash paid for financing costs		(150,085	)		(385,423	)
Net cash flows provided by financing activities		(112,227	)		1,131,304

Net Change in Cash		(231,967	)		193,228

CASH - BEGINNING OF PERIOD		340,385			147,157
CASH - END OF PERIOD	$	108,418		$	340,385

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Deferred leasing costs applied to accounts payable	$	487,910		$	—
Deferred leasing costs applied to accrued expenses		211,700			—
Land and improvements included in accrued expenses		137,447			—
Reduction of tenant improvement asset and liability from terminated leases		7,760,995			—
Accounts payable settled through note payable		827,208			481,934
Accrued expenses settled through note payable		271,287			—
Accrued interest settled through note payable		526,974			—
Reclassification of notes payable to notes payable, related party		336,797			—
Purchase of building and land improvements included in accounts payable and tenant improvement allowance		—			9,425,410
Leasing and finance fees included in accounts payable and other liabilities		—			2,337,311
Issuance of common stock included in financing fees		—			575,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	3,031,736		$	3,178,825

~~Repair~~See ~~and~~accompanying ~~maintenance~~notes ~~costs~~to ~~are~~consolidated financial ~~expensed as incurred, whereas expenditures that improve or extend the service lives of assets are capitalized~~statements. ~~Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.~~

~~Intangible Assets or Liabilities~~-51-

~~Upon~~Table ~~acquisitions~~ of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated fair value apart from goodwill for acquisitions of real estate. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. The Company amortized $182,967 and $149,010 to rent revenue for above and below-market leases for the year ended December 31, 2015 and 2014, respectively. Amortization of other intangibles is recorded in depreciation and amortization expense.Contents

~~Impairment~~TALON ofREAL ~~Long-Lived~~ESTATE ~~Assets~~HOLDING CORP.

~~Long-lived~~NOTES ~~assets,~~TO ~~such~~CONSOLIDATED FINANCIAL as real estate property, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset. The Company did not recognize any impairment losses for either of the years ended December 31, 2015 or 2014.STATEMENTS

~~Income~~As ~~Taxes~~of and for the Years Ended December 31, 2016 and 2015

~~The~~NOTE 1 ~~Company~~– ~~accounts~~ORGANIZATION ~~for~~AND ~~income~~BASIS ~~taxes~~OF under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry forwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.PRESENTATION

The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.Organization

~~F-10~~Talon Real Estate Holding Corp. (“TREHC”) previously established an Operating Partnership (“Talon OP”) and transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units. As the sole general partner of Talon OP we have the exclusive power to manage and conduct the business and affairs for the operating partnership. TREHC owned approximately 65% of the Operating Partnership as of December 31, 2016 and December 31, 2015, respectively. The Operating Partnership owned 49% of 5130 Industrial Street, LLC, 100% of Talon Bren Road, LLC, 100% of Talon First Trust, LLC, and 100% of Talon RE as of December 31, 2016 and 2015. Talon Bren Road, LLC, and Talon First Trust, LLC, are both limited liability companies organized under the laws of the state of Delaware, and were formed on May 9, 2014 and April 21, 2014, respectively, to purchase real estate. Talon Real Estate, LLC (“Talon RE”) was incorporated in the state of Minnesota on December 20, 2012 and began operations in 2013 for the purpose of acquiring real estate properties.

~~TALON~~Basis ~~REAL~~of ~~ESTATE HOLDING CORP.~~Presentation

~~NOTES~~The TOaccompanying ~~CONSOLIDATED~~consolidated ~~FINANCIAL~~financial ~~STATEMENTS~~statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”).

AsThe accompanying consolidated financial statements include the accounts of TREHC and ~~for~~its interest in the ~~Years~~Operating ~~Ended~~Partnership. ~~December~~The 31limited partners in the Operating Partnership have a redemption option that they may exercise. Upon exercise of the redemption option by the limited partners, ~~2015~~the ~~and~~Company ~~2014~~has the choice of redeeming the limited partners' interests ("Units") for TREHC common shares of stock on a one-for-one basis, or making a cash payment to the unit holder. The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units subject to volume restrictions.

NOTE 2 3 – ~~SUMMARY~~INVESTMENT OFIN ~~SIGNIFICANT~~REAL ~~ACCOUNTING~~ESTATE ~~POLICIES~~PROPERTIES ~~(continued)~~AND ENTITIES

~~Income~~The ~~Taxes~~Company acquired real estate property through its subsidiary, Talon First Trust, LLC, located at 180 E. Fifth Street, St. Paul, MN on July 2, 2014. The building is primarily leased to tenants for commercial use. The property totals 656,875 net rentable square feet. As of December 31, 2016, the Company had tenants occupying approximately 60% of the rentable space. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease. The lease was subsequently amended on January 27, 2017 to resolve certain disputes between the Company and the tenant and as amended, the lease commenced on January 1, 2018 (~~continued~~see Note 8).

The Company isacquired noreal ~~longer~~estate ~~subject~~property tothrough ~~U.S.~~its ~~federal~~subsidiary, Talon ~~state~~Bren orRoad, ~~local~~LLC, ~~income~~located ~~tax~~on ~~examinations~~20 byacres ~~tax~~of ~~authorities~~land ~~for~~at ~~the~~10301 ~~years~~Bren ~~before~~Road ~~2012~~West, Minnetonka, MN on May 29, 2014. ~~The~~This ~~Company~~property is ~~not~~primarily leased ~~currently~~to ~~under~~tenants ~~examination~~who byare ~~any~~wholesale ~~taxing~~product ~~jurisdiction~~sales representatives. InThese ~~the~~leases ~~event~~are ofsubject ~~any~~to ~~future~~a ~~tax~~master ~~assessments~~lease agreement entered into between Talon Bren Road, ~~the~~LLC ~~Company~~and ~~has~~Upper ~~elected~~Midwest toAllied ~~record~~Gifts ~~the~~Association, ~~income~~Inc., ~~tax~~a ~~penalties~~Minnesota asnonprofit ~~general~~corporation ~~and~~(“UMAGA”). This ~~administrative~~property ~~expense~~has ~~and~~164,472 ~~any~~of ~~related~~net ~~interest~~rentable assquare ~~interest~~feet. ~~expense~~As inof December 31, 2016, the Company's ~~consolidated~~had ~~statements~~100% of ~~operations~~the rentable space leased.

~~Stock-based~~The ~~Compensation~~Company owns and operates the following real estate properties through its subsidiary, 5130 LLC:

~~The~~5130 ~~Company~~Industrial has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant. The Company has recognized $173Street,~~970~~ ~~and~~Maple ~~$656~~Plain,~~623~~ ~~of compensation expense for the years ended December 31, 2015 and 2014, respectively.~~MN

~~The~~1350 ~~Company~~Budd ~~may~~Ave, ~~also~~Maple ~~issue~~Plain, common stock in exchange for goods or services of non-employees. These shares are either fully vested at date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of the services over the period in which they are received.MN

OnThe ~~February~~properties ~~10,~~are ~~2015,~~primarily ~~the~~leased ~~Company issued 460,000 shares of common stock valued at $575,000~~ to antenants ~~unrelated~~for ~~party~~mixed commercial inand ~~exchange~~industrial ~~for~~usage. ~~such~~The ~~party’s~~properties ~~guaranty~~have of a ~~loan~~combined ~~which~~171,639 ~~was~~net ~~obtained~~rentable insquare ~~the year ended December 31, 2015~~feet. ~~The~~ ~~value~~As of ~~the stock issued has been included as deferred financing costs in the consolidated balance sheet as of~~ December 31, ~~2015. Financing costs of $527~~2016,~~083~~ ~~related to this stock issuance were amortized to interest expense for~~ the Company ~~year~~had ~~ended~~tenants ~~December~~occupying ~~31,~~approximately ~~2015. No~~85% ~~stock was issued in exchange for goods or services~~ of ~~non-employees in~~ the ~~year~~rentable ~~ended December 31, 2014~~space.

~~Noncontrolling Interest~~-52-

~~Interests~~Table ~~in the Operating Partnership held by limited partners are represented by partnership common units~~ of the Operating Partnership. The Company's interest in the Operating Partnership was 65.0% of the common units of the Operating Partnership as of December 31, 2015 and 64.5% as of December 31, 2014. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.Contents

~~The~~TALON ~~portion~~REAL ofESTATE ~~membership~~HOLDING ~~interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest~~CORP. ~~Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.~~

~~Net~~NOTES ~~Income~~TO ~~(Loss)~~CONSOLIDATED FINANCIAL ~~or Earnings Per Share~~STATEMENTS

~~Basic~~As ~~earnings per common share is computed by dividing net income available to common shareholders by the weighted average number~~ of ~~common~~and for ~~shares outstanding during~~ the ~~period. Diluted~~Years ~~earnings~~Ended ~~per~~December ~~share~~31, is2016 ~~computed by dividing net income by the weighted average common~~ and ~~potential dilutive common shares outstanding in accordance with the treasury stock method.~~2015

~~F-11~~NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~TALON~~Accounting ~~REAL ESTATE HOLDING CORP.~~Estimates

~~NOTES~~The TOpreparation ~~CONSOLIDATED~~of ~~FINANCIAL~~consolidated ~~STATEMENTS~~financial statements in conformity with U.S. GAAP requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

AsPrinciples of ~~and for the Years Ended December 31, 2015 and 2014~~Consolidation

~~NOTE~~We 3evaluate –the ~~SUMMARY~~need OFto ~~SIGNIFICANT~~consolidate ~~ACCOUNTING~~affiliates ~~POLICIES~~based on standards set forth in the Financial Accounting Standards Board (~~continued~~“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. The accompanying consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership, and all subsidiaries in which it maintains a controlling interest. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC. All significant intercompany balances have been eliminated in consolidation.

~~Net Income (Loss) or Earnings Per Share (continued)~~Cash

The ~~following~~Company isconsiders ashort-term ~~reconciliation~~investments ofwith ~~the~~original maturities ~~denominator~~ of ~~the~~90 ~~basic~~days ~~net~~or ~~earnings~~less ~~per common share computation~~ to ~~the~~be ~~denominator~~cash ofequivalents. ~~the~~The ~~diluted~~Company ~~net~~believes ~~earnings~~it ~~per~~is ~~common~~not ~~share~~exposed ~~computation~~to ~~for~~any ~~each~~significant ofcredit ~~the~~risk ~~periods presented:~~on cash.

	Years Ended December 31,
	2015	2014
Weighted average common shares outstanding - basic	16,620,432	15,915,380
Plus potentially dilutive common shares:
Unvested restricted stock	61,921	140,047
Contingent shares (note 9)	-	-
Weighted average common shares outstanding - diluted	16,682,353	16,055,427

Restricted Escrows and Reserves

~~Reclassifications~~The Company is required to hold cash in restricted escrow accounts for insurance, real estate taxes and a replacement reserve. The escrows are used to pay periodic charges of real estate taxes and assessments, tenant improvements, and leasing commissions. The balances in the escrow accounts were $3,001,232 and $2,139,180 as of December 31, 2016 and 2015, respectively.

~~Certain~~Rents ~~previously~~and ~~reported~~other amounts have been reclassified to conform to the current financial statement presentation. As disclosed in Note 15, the Company has revised certain amounts previously reported in the Company’s 2014 financial statements as a result of finalizing the purchase price allocation for the acquisition of the property at 180 E. Fifth Street.Receivables

~~Recent~~Rents ~~Accounting~~receivable ~~Pronouncements~~and deferred rent are recorded at their estimated net realizable value. The Company follows a policy of providing an allowance for doubtful accounts, which is based on a review of outstanding receivables, historical collection information, and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off. Receivables have been reduced by an allowance for doubtful accounts of $129,330 and $93,560 as of December 31, 2016 and 2015 respectively.

~~In April 2014, the FASB issued ASU No. 2014~~-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 201453-08”). This newly issued accounting standard amends the definition of a discontinued operation in ASC 205-20 and requires an entity to provide additional disclosures about disposal transactions that do not meet the discontinued-operations criteria. ASU 2014-08 is effective prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted; and was adopted by the Company effective January 1, 2014. The adoption of this standard did not have a material impact on the Company’s financial position, results of operation or cash flows.

InTable May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and replace all current U.S. GAAP guidance on the topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact on the Company’s consolidated financial statements.Contents

~~F-12~~TALON REAL ESTATE HOLDING CORP.

~~TALON~~NOTES ~~REAL~~TO ~~ESTATE~~CONSOLIDATED FINANCIAL ~~HOLDING CORP.~~STATEMENTS

~~NOTES~~As TOof ~~CONSOLIDATED~~and for ~~FINANCIAL~~the ~~STATEMENTS~~Years Ended December 31, 2016 and 2015

AsNOTE 3 of– ~~and~~SUMMARY ~~for~~OF ~~the~~SIGNIFICANT ~~Years~~ACCOUNTING ~~Ended~~POLICIES ~~December 31, 2015 and 2014~~(continued)

~~NOTE~~Revenue ~~3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~Recognition

~~Recent~~Base ~~Accounting~~rental ~~Pronouncements~~income ~~(continued)~~is recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rent income earned and base rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable. When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.

InTenant ~~August~~recoveries 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related ~~footnote disclosures. The amendments require management~~ to ~~assess~~reimbursement an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of ~~the~~real ~~term substantial doubt~~estate taxes, ~~(2) require an evaluation every reporting period including interim periods~~insurance, ~~(3)~~repairs ~~provide~~and ~~principles~~maintenance for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other ~~disclosures~~operating ~~when~~expenses ~~substantial~~are ~~doubt~~billed ismonthly ~~not~~based ~~alleviated,~~on ~~and~~current ~~(6)~~year ~~require~~estimated anoperating costs ~~assessment~~ for aapplicable ~~period~~expenses. ofAn ~~one~~additional ~~year~~billing ~~after~~or ~~the~~a ~~date~~refund ~~that~~is ~~the~~made ~~financial statements are issued (or available~~ to betenants ~~issued).The amendments~~ in ~~this Update are effective for~~ the ~~annual~~following ~~period~~year ~~ending~~ after ~~December~~actual ~~15,~~operating expenses ~~2016,~~are ~~and for annual periods and interim periods thereafter~~determined. ~~Early application is permitted. The Company currently has disclosed certain matters relative to going concern in Note 17 but presently has not yet adopted the new guidance.~~

InDeferred ~~April~~Leasing ~~2015, the FASB issued ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance~~ Costs~~. The~~ amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and ~~measurement~~Tenant guidance for debt issuance costs are not affected by the amendments in this update. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Adoption of the new ASU are not expected to have material impact on the Company’s consolidated financial statements.Allowance

InDirect ~~February~~and ~~2015,~~indirect ~~the FASB issued ASU 2015-02~~costs, ~~Amendments~~including toestimated ~~the~~internal ~~Consolidation~~costs and ~~Analysis~~leasing ~~("ASU 2015-02"). This amends ASC 810~~commissions, ~~Consolidation~~associated ~~(ASC~~with ~~"810"),~~the toleasing ~~improve~~of ~~targeted~~real ~~areas~~estate ofinvestments ~~consolidation~~owned ~~guidance~~ by ~~simplifying~~ the ~~requirements~~Company ofare ~~consolidation~~capitalized ~~and~~as ~~placing~~deferred leasing ~~more~~costs ~~emphasis~~and amortized on ~~risk of loss when determining~~ a ~~controlling financial interest. ASU 2015~~straight-02line isbasis ~~effective~~over ~~for~~ the ~~annual~~term ~~period~~of ~~ending~~the ~~after~~related ~~December~~lease ~~15,~~as ~~2015,~~amortization ~~and~~expense. ~~subsequent~~Unamortized ~~interim~~costs are ~~and~~charged ~~annual~~to ~~periods~~expense ~~with~~upon the early ~~adoption~~termination ~~permitted. The adoption~~ of ~~ASU~~the ~~2015-02~~lease. ~~did~~Costs ~~not~~associated ~~have~~with aunsuccessful ~~material~~leasing ~~impact~~opportunities onare ~~the Company's consolidated financial statements~~expensed.

In ~~September~~leasing ~~2015~~tenant space, the ~~FASB~~Company ~~issued~~may ~~ASU~~provide ~~2015–16,~~funding to ~~Simplifying~~ the ~~Accounting~~lessee ~~for~~through ~~Measurement~~a ~~Period~~tenant ~~Adjustments~~allowance. ToIn ~~simplify the~~ accounting for ~~adjustments~~a ~~made~~tenant ~~to provisional amounts~~allowance, ~~ASU~~the ~~2015–16~~Company ~~requires~~determines ~~that~~whether the ~~acquirer~~allowance ~~recognize~~represents funding ~~adjustments~~for tothe ~~provisional~~construction ~~amounts~~of ~~that~~leasehold ~~are~~improvements ~~identified~~and ~~during~~evaluates the ~~measurement~~ownership, ~~period~~for inaccounting ~~the~~purposes, ~~reporting~~of ~~period~~such inimprovements. If ~~which~~ the ~~adjustment~~Company ~~amount~~ is ~~determined.~~considered ~~The~~the ~~acquirer~~owner isof ~~required~~the toleasehold ~~also~~improvements ~~record,~~for inaccounting purposes, the ~~same~~Company ~~period’s~~capitalizes ~~financial~~the ~~statements,~~amount of the ~~effect~~tenant onallowance ~~earnings~~as ofbuilding ~~changes~~improvements inand ~~depreciation,~~depreciates ~~amortization,~~it orover ~~other~~the ~~income~~shorter ~~effects,~~of ifthe ~~any,~~useful aslife ~~a result~~ of the ~~change~~leasehold toimprovements or the ~~provisional~~related ~~amounts,~~lease ~~calculated~~term. For tenant allowances committed at lease inception and recorded as ifbuilding ~~the~~improvements ~~accounting~~but ~~had~~not ~~been~~yet performed or completed, at the ~~acquisition~~corresponding ~~date. In~~liability ~~addition~~will anbe ~~entity~~recorded isas ~~required~~tenant toimprovement ~~present~~allowance ~~separately~~payables. onIf the ~~face~~tenant ofallowance represents ~~the~~a ~~income~~payment ~~statement~~for ora ~~disclose~~purpose other than funding leasehold improvements, or in the ~~notes~~event to the ~~financial~~Company ~~statements~~is ~~the~~not ~~portion~~considered the owner of the ~~amount~~improvements, ~~recorded~~for inaccounting ~~current~~purposes, ~~period~~the ~~earnings~~tenant byallowance ~~line~~is ~~item~~considered ~~that~~to ~~would~~be ~~have~~a ~~been~~lease ~~recorded~~incentive inand ~~previous~~is ~~reporting~~capitalized as ~~periods~~a ifdeferred ~~the~~leasing ~~adjustment~~cost toand ~~the~~is ~~provisional~~amortized ~~amounts~~over ~~had~~the ~~been~~lease ~~recognized~~term as a reduction of ~~the~~rental ~~acquisition~~revenue ~~date~~on a straight-line basis. The Company ~~provisions~~had ofamortization ~~ASU~~expense ~~2015–16~~for ~~are~~tenant ~~effective~~improvements of $1,055,589 and $1,152,211 for ~~fiscal~~the years ~~beginning~~ended ~~after~~ December 1531, 2016 and 2015, respectively. The Company had amortization expense for leasing costs of $293,337 and ~~interim~~$337,704 ~~periods~~for ~~within~~the ~~those~~year ~~fiscal~~ended ~~years~~December 31, 2016 and 2015, respectively. WeThe ~~will~~Company ~~adopt~~had ~~this~~accumulated ~~ASU~~amortization ~~should~~for wetenant ~~report~~allowances ~~provisional~~of ~~amounts~~$2,880,732 ~~for~~and ~~items~~$1,826,901 inas of aDecember ~~business~~31, ~~combination~~2016 and 2015, respectively.

~~F-13~~Deferred Financing Costs

~~TALON~~Costs ~~REAL~~incurred ~~ESTATE~~in ~~HOLDING~~connection ~~CORP~~with obtaining financing are capitalized and are being amortized using the effective interest method over the financing term and are included in interest expense. The Company had amortization expense of $623,549 and $1,200,816 for the years ended December 31, 2016 and 2015, respectively. The Company had accumulated amortization of $2,126,444 and $1,502,895 as of December 31, 2016 and 2015, respectively. As of December 31, 2015, the Company had incurred deferred financing costs of $139,021 that did not have amortization expense in the year ended December 31, 2015 as the financing had not closed as of that date. These costs were expensed in 2016 when it was determined that the efforts to secure financing were unsuccessful.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~-54-

AsTable of ~~and for the Years Ended December 31, 2015 and 2014~~Contents

~~NOTE~~TALON 3REAL –ESTATE ~~SUMMARY~~HOLDING ~~OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~CORP.

~~Recent~~NOTES ~~Accounting~~TO ~~Pronouncements~~CONSOLIDATED FINANCIAL ~~(continued)~~STATEMENTS

~~During~~As February 2016, FASB issued ASU No. 2016-02, “Leases.” ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of ~~12 months) on the balance sheet as a lease liability~~ and ~~a right-of-use asset (as defined). ASU No. 2016-02 is effective~~ for ~~fiscal~~the ~~years~~Years ~~beginning~~Ended ~~after~~ December 1531, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016~~-02~~ ~~will have on its results of operations, financial position~~ and ~~cash flows.~~2015

NOTE 3 4 – ~~TENANT~~SUMMARY ~~LEASES~~OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~The~~Real ~~Company~~Estate ~~leases~~Property ~~various commercial~~ and ~~industrial~~Fixed space to tenants over terms ranging from month-to-month to twelve years. Some of the leases have renewal options for additional terms. The leases expire at various dates from January 2016 to December 2027. Some leases provide for base monthly rentals and reimbursements for real estate taxes and common area maintenance.Assets

~~The~~Investment ~~Company~~in ~~has~~real estate and fixed assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. We allocate the ~~following~~cost ~~future~~of ~~minimum~~an ~~base~~acquisition, ~~rentals~~including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on ~~non-cancellable~~their ~~leases~~relative fair values. Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of ~~December~~acquisition. ~~31,~~Management’s ~~2015:~~fair value assessment includes the use of readily accepted fair value techniques such as discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis.

2016	$	7,268,798
2017		6,933,638
2018		6,787,635
2019		6,006,932
2020		2,901,908
Thereafter		11,968,225
Total	$	41,867,136

The Company finalized the purchase price fair value allocation of the First Trust acquisition during the year ended December 31, 2015 and has recorded certain measurement period adjustments.

~~Included~~Depreciation inis provided using the ~~above~~straight-line ~~table~~method ~~are~~over the ~~base~~estimated ~~lease~~useful ~~payments~~life ~~due~~of ~~beginning~~the ~~January~~assets 1,for ~~2018~~furniture ~~totaling~~and ~~$15~~equipment,~~627,822~~ ~~for~~buildings aand ~~significant~~land ~~tenant~~improvements, ~~that~~and ~~has~~the ~~not~~term ~~occupied~~of ~~space~~the ~~yet, but~~ lease for ~~which~~tenant weimprovements. ~~have~~The anestimated ~~executed~~useful ~~lease~~lives ~~agreement~~being ~~(see~~used ~~Note~~are ~~9).~~as follows:

F-14

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

~~TALON~~Repair ~~REAL~~and ~~ESTATE~~maintenance ~~HOLDING~~costs ~~CORP~~are expensed as incurred, whereas expenditures that improve or extend the service lives of assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.

~~NOTES~~Intangible TOAssets ~~CONSOLIDATED~~or ~~FINANCIAL STATEMENTS~~Liabilities

AsUpon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated fair value apart from goodwill for acquisitions of real estate. The Company amortizes identified intangible assets and liabilities based on the ~~Years~~period ~~Ended~~over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. The Company amortized $183,929 and $182,967 to rent revenue for above and below-market leases for the years ended December 31, 2016 and 2015, respectively. Amortization of other intangibles is recorded in depreciation and ~~2014~~amortization expense.

~~NOTE 5 – NOTES PAYABLE~~-55-

~~The~~Table ~~following~~of ~~table summarizes the Company’s notes payable.~~Contents

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	December 31, 2015		December 31, 2014
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.75%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	February 15, 2016	8.00%		481,934		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		11,123,773		11,378,013
Talon Bren Road, LLC Mortgage 2(3)	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		-
Talon Bren Road, LLC Mortgage 2	Secured fixed rate	December 31, 2014	6.00%		-		881,427
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		111,797		137,027
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,049,859		4,120,952
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		294,021		295,304
Talon OP, L.P. – Promissory Note – Related Party (4)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		500,000
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		250,000
				$	51,786,384	$	49,787,723

TALON REAL ESTATE HOLDING CORP.

~~(1)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Beginning~~As ~~January~~of ~~2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street~~ and for ~~work completed to prepare~~ the ~~tenant~~Years ~~space~~Ended ~~for~~December ~~a significant lease entered into on April 9~~31, ~~2015. We~~2016 are working to obtain financing to satisfy these liens. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option. The lender is aware of this default and ~~our refinancing efforts to cure it. They are currently not exercising any remedies with respect to any defaults.~~2015

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (2continued)

OnImpairment ~~November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager~~ of ~~Talon~~Long-Lived First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015. The note bears interest at 8% annually and had an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to February 15, 2016 and increased the note by $103,002 for the January 2016 fees and interest incurred through December 31, 2015 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9).Assets

~~(3)~~Long-lived assets, such as real estate property, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset. The Company did not recognize any impairment losses for either of the years ended December 31, 2016 or 2015.

~~This~~Income note replaces the previous Talon Bren Road, LLC Mortgage 2 note that matured December 31, 2014 and is secured by the same property. The original maturity date for this note of March 1, 2016 was amended to March 1, 2017.Taxes

~~(4)~~The Company accounts for income taxes under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry forwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

~~Related~~The ~~Party~~Company's ~~promissory~~policy ~~note~~of ~~(see~~accounting ~~Note~~for 6)uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.

~~(5)~~The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2013. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations.

OnStock-based January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively. In 2015, the Company extended the maturity dates of both notes to December 31, 2015. The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015. Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016. The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016.Compensation

FThe Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-15based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant. The Company has recognized $411,107 and $173,970 of compensation expense for the years ended December 31, 2016 and 2015, respectively.

~~TALON~~The ~~REAL~~Company ~~ESTATE~~may ~~HOLDING~~also ~~CORP~~issue common stock in exchange for goods or services of non-employees. These shares are either fully vested at date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of the services over the period in which they are received.

~~NOTES~~On TOFebruary ~~CONSOLIDATED~~10, ~~FINANCIAL~~2015, ~~STATEMENTS~~the Company issued 460,000 shares of common stock valued at $575,000 to an unrelated party in exchange for such party’s guaranty of a loan which was obtained in the year ended December 31, 2015. Financing costs of $47,917 and $527,083 related to this stock issuance were amortized to interest expense for the years ended December 31, 2016 and 2015.

~~As of and for the Years Ended December 31, 2015 and 2014~~-56-

~~NOTE~~Table 5of ~~– NOTES PAYABLE (continued)~~Contents

~~The~~TALON ~~Company~~REAL isESTATE ~~required~~HOLDING ~~to make the following principal payments on our outstanding notes payable for each of the succeeding fiscal as follows:~~CORP.

	Amount
2016	$	34,350,502
2017		6,576,518
2018		322,112
2019		10,537,252
	$	51,786,384

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~The~~As ~~Company~~of ~~is required to periodically fund~~ and for ~~maintain~~the ~~escrow~~Years ~~accounts~~Ended toDecember ~~make~~31, ~~future~~2016 ~~real estate tax~~ and ~~insurance payments, as well as to fund certain capital expenditures.~~2015

~~The~~NOTE 3 ~~Company’s~~– ~~mortgage~~SUMMARY ~~assumed~~OF bySIGNIFICANT ~~Talon~~ACCOUNTING ~~Bren~~POLICIES ~~Road, LLC in connection with the acquisition of the property at Bren Road includes a restrictive covenant that requires Talon Bren Road, LLC to maintain a minimum debt service coverage~~ (~~“DSCR”~~continued) before distributions of 1.35:1.00 and after distributions of 1:05:1.00 as of the last day of each calendar year. As of December 31, 2015, Talon Bren Road LLC was out of compliance with the DSCR test. An amendment to the loan agreement as well as waiver of the DSCR default for the December 31, 2015 test date was subsequently executed. The loan agreement was amended to include a minimum Senior Debt Service Coverage Ratio (pre-distributions) of not less than 1.50:1.00. It also amended and restated the minimum Debt Service Coverage Ratio before distributions of not less than 1.20:1.00 as of the last day of each calendar year commencing after December 31, 2015.

~~The~~Noncontrolling Company’s mortgage entered into by Talon First Trust, LLC in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota includes a financial covenant that requires the Company to maintain a net worth that equals or exceeds $30 million and cash and marketable securities equal to or greater than $3 million as of December 31, 2015 through the remaining term of the loan. The loan agreement allows the Company 30 days following any failure in which to satisfy this financial covenant or provide an individual or entity acceptable to lender as another guarantor on the loan and of the environmental indemnity obligations. Failure to satisfy the covenant would constitute an event of default under the terms of the loan. The Company (as well as Talon OP, L.P.) is a guarantor of the loan entered into by Talon First Trust, LLC and an indemnitor of Talon First Trust, LLC’s environmental obligations in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota. The lender has accepted Mr. Kaminski as an additional guarantor pursuant to the Joinder Agreement dated March 30, 2016. Although Mr. Kaminski has executed a joinder agreement adding himself as an additional guarantor on the loan, the lender has reserved all rights, remedies and recourses available to it for any event of default whether arising prior or after the date of the agreement. There is no assurance that the financial covenants will be satisfied in the future. As such, the Company has included the full outstanding balance of the loan in the principal amounts due in 2016 in the table above.Interest

FInterests in the Operating Partnership held by limited partners are represented by partnership common units of the Operating Partnership. The Company's interest in the Operating Partnership was 65% of the common units of the Operating Partnership as of December 31, 2016 and 2015. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-16controlling interests in accordance with the terms of the Operating Partnership agreement.

~~TALON~~The ~~REAL~~portion ~~ESTATE~~of ~~HOLDING~~membership ~~CORP~~interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest. Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

~~NOTES~~Net TOIncome ~~CONSOLIDATED~~(Loss) ~~FINANCIAL~~or ~~STATEMENTS~~Earnings Per Share

AsBasic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common ~~and~~shares ~~for~~outstanding during the ~~Years~~period. ~~Ended~~Diluted ~~December~~earnings ~~31,~~per ~~2015~~share is computed by dividing net income by the weighted average common and ~~2014~~potential dilutive common shares outstanding in accordance with the treasury stock method.TALON REAL ESTATE HOLDING CORP.

~~NOTE~~The 6following –is ~~TRANSACTIONS~~a ~~WITH~~reconciliation ~~RELATED~~of ~~PARTIES~~the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented:

The Company engaged in services with related parties due to common ownership during the periods presented, which are described below.

	Years Ended December 31,
	2016		2015
Weighted average common shares outstanding - basic		17,027,312		16,620,432
Plus potentially dilutive common shares:
Unvested restricted stock		14,192		61,921
Weighted average common shares outstanding - diluted		17,041,504		16,682,353

OnRecent ~~August~~Accounting 12, 2014, the Company entered into a $500,000 unsecured promissory note with one of its directors. The note bore interest at 14% annually and had an original maturity date of February 8, 2015. Proceeds from this note paid off additional notes entered into on December 30, 2013 and March 7, 2014, respectively, for $100,000 each, with the same party. In 2015, the Company extended the maturity date of the note to December 31, 2015. The note bore interest at 20% annually from July 1, 2015 through September 30, 2015. Subsequently, in 2016 the Company extended the maturity date of the note to the earlier of, the disposition or refinancing of the property at 180 E. Fifth Street in St. Paul or June 30, 2016. The note will bear interest at 24% annually from November 1, 2015 through June 30, 2016. The Company incurred $90,164 and $41,760 of interest expense for the years ended December 31, 2015 and 2014, respectively. Accrued interest on the note was $117,397 and $27,233 as of December 31, 2015 and 2014, respectively. The Company did not pay any interest on the current note for the year ended December 31, 2015 and 2014, respectively. The note agreement provides that the Company will not make any distributions, dividends or payments to any of their equity shareholders other than to preferred unit holders.Pronouncements

~~NOTE~~In 7May –2014, ~~CONCENTRATIONS~~the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and replace all current U.S. GAAP guidance on the topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Adoption had no material impact on the Company’s consolidated financial statements.

The Company has three tenants that rent approximately 31% of the Company’s total rentable space as of December 31, 2015 with base rent representing 62% of total base rent revenues for the year ended December 31, 2015. For the same period in 2014, three tenants rented approximately 30% of the total rentable space as of December 31, 2014 with base rent representing 56% of total base rent revenues for the year ended December 31, 2014. The largest tenant rents approximately 12% of the rentable space and represents 24% of total base rent revenues for the year ended December 31, 2015. The Company had two parties who accounted for 90% of the total outstanding rents and other receivables balance as of December 31, 2015 and the same two parties accounted for 76% of the total outstanding rents and other receivables balance as of December 31, 2014.-57-

~~NOTE~~Table 8of ~~– RESTRICTED ESCROWS AND RESERVES~~Contents

~~According~~TALON toREAL ~~the~~ESTATE ~~terms~~HOLDING of the Company's notes payable agreements (Note 5), the Company is required to make monthly and quarterly deposits to various escrow and reserve accounts for the payment of real estate taxes, tenant improvements and leasing commissionsCORP. ~~The balances in these restricted escrows and reserve accounts are as follows:~~

	December 31, 2015		December 31, 2014
Real estate tax escrow	$	351,407	$	387,063
Replacement reserve escrow		5,615		166,914
Property insurance escrow		60,961		60,186
General escrow		68,500		33,000
Tenant improvements & leasing cost escrow		1,652,697		1,246,489
	$	2,139,180	$	1,893,652

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~F-17~~As of and for the Years Ended December 31, 2016 and 2015

~~TALON~~NOTE 3 ~~REAL~~– ~~ESTATE~~SUMMARY ~~HOLDING~~OF ~~CORP.~~SIGNIFICANT ACCOUNTING POLICIES (continued)

~~NOTES~~Recent TOAccounting ~~CONSOLIDATED~~Pronouncements ~~FINANCIAL STATEMENTS~~(continued)

AsIn April 2015, the FASB issued ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the ~~Years~~amendments ~~Ended~~in ~~December~~this 31update. The Company adopted the amendments in this update effective January 1, ~~2015~~2016. ~~and~~Adoption ~~2014~~did not have a material impact on the financial statements.

~~NOTE~~In 9August –2016, ~~COMMITMENTS~~the ~~AND~~Financial ~~CONTINGENCIES~~Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of the ASU had no material impact on the Company’s financial statements.

OnIn ~~June~~August 72014, ~~2013~~the FASB issued ASU No. 2014-15, ~~Talon~~Presentation of REFinancial ~~entered~~Statements—Going ~~into~~Concern (Subtopic 205-40). The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a ~~contribution~~going ~~agreement~~concern ~~with~~and ~~the~~to ~~remaining~~provide ~~interest~~related ~~holder~~footnote ofdisclosures. The ~~5130~~amendments ~~LLC~~require ~~pursuant~~management to ~~which~~assess itan ~~will~~entity’s ability ~~acquire~~to ~~the~~continue ~~remaining~~as ~~51%~~a ~~interest~~going inconcern ~~5130~~by ~~LLC~~incorporating and expanding upon certain principles that are currently in ~~exchange~~U.S. ~~for~~auditing standards. 2Specifically,~~820,810~~ ~~shares~~the amendments (1) provide a definition of ~~our~~the ~~common~~term ~~stock~~substantial doubt, ~~subject~~(2) torequire ~~receiving~~an ~~consent~~evaluation toevery reporting period including interim periods, (3) provide principles for considering the ~~transfer~~mitigating ~~from~~effect ~~5130~~of ~~LLC~~management’s plans, ~~lender~~(4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The Company has adopted this amendment in this update effective for the current fiscal year. (see Note 16)

~~The~~In ~~Company~~March ~~entered~~2016, ~~into~~the aFASB ~~property~~issued ~~lease~~ASU ~~agreement~~2016-09—Compensation—Stock Compensation ~~relating~~(Topic to718): ~~rental~~Improvements ofto ~~office~~Employee ~~space. This non~~Share-~~cancellable~~Based ~~lease~~Payment ~~has~~Accounting a(“ASU ~~remaining term of 54 months~~2016-09”). ~~The~~ASU ~~Company~~2016-09 ~~incurred $105,357 and $78,369 of rent expense for~~ modifies the ~~years~~accounting ~~ended December 31, 2015 and 2014, respectively. The lease is subject to periodic adjustments~~ for ~~operating expenses. The future net minimum rental payments for this lease are as follows:~~share-

Years ending December 31,
2016		51,629
2017		67,690
2018		84,664
2019		89,187
2020		45,876
	$	339,046

based payment awards, including income tax consequences, classification of awards as equity or liabilities, and classification on the statement of cash flows. The effective date for ASU 2016-09 is for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s business, financial position, results of operations or liquidity.

The Company entered into a Contribution Agreement dated May 29, 2014 with Bren Road, LLC, the contributor of the property acquired through our subsidiary, Talon Bren Road, LLC. The agreement provides for any deficit in achieving $1,560,000 of net operating income (“NOI”) per year for the first three years to be funded by Bren Road, LLC. The Company recognized $153,173 and $188,724 of income under this agreement for the years ended December 31, 2015 and 2014, respectively.-58-

~~The~~Table Company entered into a consulting agreement dated May 29, 2014 with Gerald Trooien (“Consultant”). This agreement provides for consulting services to Talon Bren Road, LLC for $43,750 per month payable beginning August 15, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of ~~any of the following:~~Contents

aTALON REAL ESTATE HOLDING CORP.

~~redemption~~NOTES orTO ~~conversion~~CONSOLIDATED FINANCIAL ~~of all limited partnership units held by Bren Road, LLC,~~STATEMENTS

b.As of and for the Years Ended December 31, 2016 and 2015

~~sale~~NOTE 3 by– ~~Bren~~SUMMARY ~~Road~~OF ofSIGNIFICANT ~~any~~ACCOUNTING ofPOLICIES ~~its partnership units in Talon OP, L.P.,~~(continued)

c.Recent Accounting Pronouncements (continued)

~~payment~~During February 2016, FASB issued ASU No. 2016-02, “Leases.” ASU No. 2016-02 was issued to ~~Bren~~increase ~~Road~~transparency ofand ~~any~~comparability ~~dividends~~among organizations by recognizing all lease transactions (with terms in ~~respect~~excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to ~~Bren~~all ~~Road’s~~periods ~~interest~~presented or retrospectively using a cumulative effect adjustment in ~~Talon,~~the ~~and~~year of adoption. The adoption of this Standard did not have a material impact on the Company’s financial statements.

dIn March 2016, the FASB issued ASU 2016-08 – “Revenue from Contracts with Customers: Principal versus Agent Considerations.” The amendments of this standard are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for ASU 2016-08 is the same as the effective date for ASU 2014-09 and ASU 2015-14. Adoption of this Standard did not have a material impact on The Company’s financial statements.

In January 2017, the ~~Company~~FASB ~~qualifies~~issued asASU 2017-01 – “Business Combinations (Topic 805): Clarifying the Definition of a ~~real~~Business.” The ~~estate~~amendment ~~investment~~is ~~trust~~intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (~~REIT~~or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The effective date for ASU 2017-01 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted the new guidance effective January 1, 2018 and the guidance resulted in acquisitions of operating properties being accounted for as asset acquisitions instead of business combinations. The adoption of this guidance changed the Company’s accounting for the transaction costs for acquisitions of operating properties such that transaction costs are capitalized as part of the purchase price of the acquisition instead of being expensed as acquisition-related expenses. The ASU is required to be applied prospectively.

~~The~~NOTE 4 ~~consulting~~– ~~agreement~~TENANT provides for a reduction of the monthly consulting fees upon potential receipt of funds by the Consultant from a subsequent mortgage financing. The Company had recognized $131,250 of accrued expenses for this contingency based on the likelihood of expenses to be incurred that could be reasonably estimated at the time of acquisition. This contingent liability was included as part of the purchase price fair value allocation of the tangible and intangible assets acquired on May 29, 2014 and currently has a balance of $0.LEASES

The Company ~~incurred~~leases ~~$538,877~~various commercial and ~~$87,500~~industrial space to tenants over terms ranging from month-to-month to twelve years. Some of ~~consulting~~the ~~expenses~~leases have renewal options for ~~the~~additional ~~year~~terms. The ~~ended~~leases ~~December~~expire ~~31,~~at ~~2015~~various ~~and~~dates ~~2014,~~from ~~respectively.~~January ~~The~~2017 ~~Company~~to ~~had~~December ~~amounts~~2025. ~~due~~Some ofleases ~~$45,938~~provide ~~and~~for ~~$43,750~~base asmonthly ofrentals ~~December~~and ~~31,~~reimbursements for ~~2015~~real estate taxes and ~~2014,~~common ~~respectively~~area maintenance.

FThe Company has the following future minimum base rentals on non-18cancellable leases as of December 31, 2016:

TALON REAL ESTATE HOLDING CORP.

2017	$	7,019,785
2018		6,927,823
2019		6,207,780
2020		3,112,572
2021		1,728,134
Thereafter		10,851,438
Total	$	35,847,533

~~NOTES~~Included TOin ~~CONSOLIDATED~~the ~~FINANCIAL~~above ~~STATEMENTS~~table are base lease payments due beginning January 1, 2018 totaling $15,832,430 for a significant tenant that has not occupied space yet, but for which we have an executed lease agreement (see Note 8).

~~As of and for the Years Ended December 31, 2015 and 2014~~-59-

~~NOTE~~Table 9of ~~– COMMITMENTS AND CONTINGENCIES (continued)~~Contents

~~The~~TALON ~~Company~~REAL ~~entered~~ESTATE ~~into~~HOLDING ~~a Property Management Agreement dated July 2, 2014 with Swervo Management Division, LLC (“Property Manager~~

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