Bluerock Residential Growth REIT, Inc. (NYSEMKT:BRG) Files An 8-K Other Events

ITEM 8.01

Valuation of Series B Redeemable Preferred Stock

On January 17, 2017, the board of directors of the Company, or
the Board of Directors, established an estimated value per share
of the Companys Series B Redeemable Preferred Stock, or the
Series B Preferred Stock, of $1,000.00 plus accreted dividends
based substantially on fair value of the Companys estimated
equity interest in the Companys portfolio of real estate
properties in various geographic locations in the United States,
or the Portfolio, net of associated mortgage liabilities, as of
June 30, 2016. The Company is providing this estimated value per
share to assist broker-dealers that are participating in the
Companys public offering of its Series B Preferred Stock in
meeting their customer account statement reporting obligations
under National Association of Securities Dealers Conduct Rule
2340 and Financial Industry Regulatory Authority Rule 2310, both
being required by FINRA and both of which require the estimated
value per share to be based on valuations of the assets and
liabilities of the Company, or the FINRA Valuation Rules.

The Company engaged Duff Phelps, LLC, or Duff Phelps, to assist
the Company with providing an estimated value per share of the
Series B Preferred Stock that utilizes valuations of the assets
and liabilities of the Company as required by the FINRA Valuation
Rules by providing a calculation of the estimated as-is market
value of the Portfolio as of June 30, 2016. Duff Phelps estimated
the as is market values of each underlying property in the
Portfolio as of June 30, 2016, using multiple methodologies
described herein. The Company then provided Duff Phelps with
ownership interests, promote/waterfall models, cash balances and
loan information for each property, as applicable, which Duff
Phelps did not verify and assumed to be accurate and correct.
Duff Phelps then input the 100% market value of each property and
outstanding loan balance into the applicable promote/waterfall
model and performed a mathematical calculation to arrive at the
fair value of the Companys estimated equity interest in each
property in the Portfolio, which it then aggregated, or the
Portfolio Equity. Any change in the information provided by the
Company would change the amount of the Portfolio Equity. Duff
Phelps then added the Companys cash balance as of June 30, 2016,
or Cash, which was provided by the Company, to the Portfolio
Equity and compared the sum to the aggregate accreted value of
the Companys 8.250% Series A Cumulative Redeemable Preferred
Stock, or the Series A Preferred Stock, and Series B Preferred
Stock outstanding as of June 30, 2016 and concluded that the
liquidation value of such Series A Preferred Stock was its actual
liquidation value plus accreted dividends at June 30, 2016 of
approximately $145.99 million, or the Series A Preferred Stock
Liquidation Value, and the liquidation value of such Series B
Preferred Stock was its liquidation value plus accreted dividends
of approximately $1.90 million, or the Series B Preferred Stock
Liquidation Value, for an aggregate liquidation value plus
accreted dividends of approximately $147.89 million, or the
Aggregate Liquidation Value. The Company then subtracted other
balance sheet liabilities as of June 30, 2016, as reflected in
the Companys Quarterly Report on Form 10-Q for the six months
ended June 30, 2016, from the Portfolio Equity and Cash to arrive
at an adjusted Portfolio Equity, or the Adjusted Portfolio
Equity. The Company then compared the Adjusted Portfolio Equity
to the Aggregate Liquidation Value and determined that the
Adjusted Portfolio Equity significantly exceeds the Aggregate
Liquidation Value. Because the Adjusted Portfolio Equity exceeded
the Aggregate Liquidation Value, the Board of Directors
ultimately approved an estimated value per share of the Series B
Preferred Stock of $1,000.00 plus accreted dividends based on the
Series B Preferred Stock Liquidation Value. The estimated value
per share concluded upon is ultimately and solely the
responsibility of the Board of Directors.

As with any valuation methodology, the methodologies used are
based upon a number of assumptions and estimates that may not be
accurate or complete. Different parties with different
assumptions and estimates or methodology could derive a different
estimated value per share, and these differences could be
significant. These limitations are discussed further under
Limitations of Estimated Value per Share below.

Valuation Methodologies

The Companys goal in calculating an estimated value per share is
to arrive at a value that is reasonable and supportable using
what the Company deems to be appropriate valuation and appraisal
methodologies and assumptions. The following is a summary of the
valuation methodologies and components used to calculate the
estimated value per share of Series B Preferred Stock.

Real Estate Portfolio

Independent Valuation Firm

Duff Phelps was recommended by BRG Manager, LLC, the Companys
external manager, or the Manager, to the Board of Directors to
provide independent valuation services. The Board of Directors
approved the engagement of Duff Phelps for those services. Duff
Phelps is a leading global valuation advisor with expertise in
complex valuation work that is not affiliated with the Company or
the Manager. Duff Phelps may be engaged to provide professional
services to the Company in the future. The Duff Phelps personnel
who prepared the valuation have no present or prospective
interest in the Portfolio and no personal interest with the
Company or the Manager.

Duff Phelps engagement for its valuation services was not
contingent upon developing or reporting predetermined results. In
addition, Duff Phelps compensation for completing the valuation
services was not contingent upon the development or reporting of
a predetermined value or direction in value that favors the cause
of the Company, the amount of the value opinion, the attainment
of a stipulated result, or the occurrence of a subsequent event
directly related to the intended use of its Valuation Report. The
Company has agreed to indemnify Duff Phelps against certain
liabilities arising out of this engagement.

Duff Phelps analyses, opinions, or conclusions were developed,
and the Valuation Report was prepared, in conformity with the
Code of Uniform Standards of Professional Appraisal Practice. The
Valuation Report was reviewed, approved and signed by six
individuals, five of which have the professional designation of
MAI (Member of the Appraisal Institute). The use of the Valuation
Report is subject to the requirements of the Appraisal Institute
relating to review by its duly authorized representatives. Duff
Phelps did not inspect the properties that comprised the
Portfolio.

In preparing the Valuation Report, Duff Phelps relied on
information provided by the Company and the Manager regarding the
Portfolio. For example, the Company and the Manager provided
information regarding the location, number of apartment units,
year of construction for stabilized projects, construction
details for properties under development, ownership interest,
cash balances, loan information and promote/waterfall models and
other financial and economic characteristics. The Company and the
Manager also provided leasing and rental information.

Duff Phelps did not investigate the legal description or legal
matters relating to the Portfolio, including title or
encumbrances, and title to the properties was assumed to be good
and marketable. The Portfolio was also assumed to be free and
clear of liens, easements, encroachments and other encumbrances,
and to be in full compliance with zoning, use, occupancy,
environmental and similar laws unless otherwise stated by the
Company. The Company provided Duff Phelps with promote/waterfall
models to calculate the equity interest in each property. Duff
Phelps only inputted the 100% market value of each property and
the outstanding loan balance into the waterfall/promote models to
calculate the equity interest. Furthermore, some of the
waterfall/promote models for the properties under
development/pending development contained cash on hand and
outstanding loan balances. Duff Phelps did not verify this
information, including the promote/waterfall models, and assumed
that the calculated equity interest using the Company provided
promote/waterfall models is correct for each property. Any change
in the ownership interest or waterfall/promote models would
affect Duff Phelps calculation. The Valuation Report contains
other assumptions, qualifications and limitations that qualify
the analysis, opinions and conclusions set forth therein.
Furthermore, the prices at which the Companys real estate
properties may actually be sold could differ from their appraised
values. Duff Phelps aggregated the individual property values for
purposes of its analysis, which should not be construed as value
to a single purchaser or bulk value.

The foregoing is a summary of the standard assumptions,
qualifications and limitations that generally apply to the
Valuation Report.

Real Estate Valuation

As of June 30, 2016, the Portfolio contained 23 property
investments. The 23 properties are comprised of 17 developed
properties, four properties under construction and two properties
pending development. The Company generally invested in the
properties through joint ventures or other indirect ownership
interests.

Duff Phelps estimated the as is market values of the leased fee
interest in the 17 developed properties and the fee simple
interest in the two properties pending development and four
properties under construction as of June 30, 2016, using multiple
methodologies. In traditional valuation theory, the three
approaches to estimating the value of an asset are the cost
approach, sales comparison approach, and income capitalization
approach. Each approach assumes valuation of the property at its
highest and best use. From the indications of these analyses, an
opinion of value is reached based upon expert judgment within the
outline of the appraisal process. Duff Phelps utilized the income
capitalization approach with support from the sales comparison
approach for each property. With exception of the two properties
pending development, the income approach was the primary
indicator of value, with secondary consideration given to the
sales approach. The sales approach was used to value the two
properties pending development plus the costs incurred.

The income capitalization approach simulates the reasoning of an
investor who views the cash flows that would result from the
anticipated revenue and expense on a property throughout its
lifetime. The net income developed in the analysis is the balance
of potential income remaining after vacancy and collection loss,
and operating expenses. The net income is then capitalized at an
appropriate rate to derive an estimate of value or discounted by
an appropriate yield rate over a typical projection period in a
discounted cash flow analysis. Thus, two key steps are involved:
(1) estimating the net income applicable to the subject property
and (2) choosing appropriate capitalization rates and discount
rates. The appropriate rates are ones that will provide both a
return on the investment and a return of the investment over the
life of the particular property.

The sales comparison approach estimates value based on what other
purchasers and sellers in the market have agreed to as a price
for comparable improved properties. This approach is based upon
the principle of substitution, which states that the limits of
prices, rents and rates tend to be set by the prevailing prices,
rents and rates of equally desirable substitutes. Duff Phelps
gathered comparable sales data throughout various markets as
secondary support for its valuation estimate.

The following summarizes the range of capitalization rates that
were used to arrive at the estimated market values of the
properties in the Portfolio:

Calculation of Estimated Equity Interest in
Portfolio

The Company provided Duff Phelps with ownership interests,
promote/waterfall models, cash balances and loan information for
each property, as applicable, which Duff Phelps did not verify
and assumed to be accurate and correct. Duff Phelps then input
the 100% market value of each property and outstanding loan
balance into the applicable promote/waterfall model and performed
a mathematical calculation to arrive at the fair value of the
Companys estimated equity interest in each property in the
Portfolio, which it then aggregated, or the Portfolio Equity. Any
change in the information provided by the Company would change
the amount of the Portfolio Equity.

Other Liabilities

The Company made adjustments to the Portfolio Equity and Cash to
reflect other liabilities of the Company, as of June 30, 2016, as
reflected in the Companys Quarterly Report on Form 10-Q for the
six months ended June 30, 2016, to calculate the Adjusted
Portfolio Equity. To calculate its Adjusted Portfolio Equity, the
Company deducted accounts payable, other accrued liabilities,
amounts owed to affiliates, distributions payable on its common
stock, and liabilities associated with operating real estate held
for sale.

Value Per Share and Sensitivity

Based on the Portfolio Equity and the Adjusted Portfolio Equity
both substantially exceeding the Aggregate Liquidation Value, the
Company has determined and the Board of Directors has approved an
estimated value per share of the Series B Preferred Stock of
$1,000.00 plus accreted dividends. While the Company believes
that Duff Phelps assumptions and inputs are reasonable, a change
in these assumptions could impact the calculations of the
Portfolio Equity, the Adjusted Portfolio Equity and the Companys
estimated value per share of Series B Preferred Stock. The
Company has reviewed the assumptions and inputs and has
determined that if the terminal capitalization rates or discount
rates were adjusted by 25 basis points and assumes all other
factors remain unchanged, the estimated value per share of the
Series B Preferred Stock would still be at least $1,000 plus
accreted dividends. This is only hypothetical to illustrate
possible results if only one change in assumptions was made, with
all other factors held constant. Further, this assumption could
change by more than 25 basis points.

Role of the Board of Directors

The Board of Directors is responsible for the oversight of the
valuation process, including the review and approval of the
valuation process and methodologies used to determine the
Companys estimated value per share of Series B Preferred Stock,
the consistency of the valuation and appraisal methodologies with
real estate industry standards and practices and the
reasonableness of the assumptions used in the valuations and
appraisals. The Board of Directors approved the Companys
engagement of Duff Phelps to provide the Valuation Report. The
Board of Directors received a copy of the Valuation Report and
discussed the report with representatives of Duff Phelps. The
Board of Directors also discussed the Valuation Report, the
Portfolio, the Companys assets and liabilities and other matters
with senior management of the Manager. The Manager recommended to
the Board of Directors that the Series B Preferred Stock receive
an estimated valuation of $1,000.00 per share plus accreted
dividends, and that valuation be approved as the estimated value
per share of the Series B Preferred Stock. The Board of Directors
discussed the rationale for this value with the Manager.

Following the Board of Directors receipt and review of the
Valuation Report, the recommendation of the Manager, and in light
of other factors considered by the Board of Directors and its own
extensive knowledge of the Companys assets and liabilities, the
Board of Directors unanimously agreed to approve the estimated
value per share of Series B Preferred Stock of $1,000.00 plus
accreted dividends as of June 30, 2016, which determination was
ultimately and solely the responsibility of the Board of
Directors.

Limitations of Estimated Value per Share

The Company is providing this estimated value per share of Series
B Preferred Stock to assist broker-dealers that participate in
the Companys public offering in meeting their customer account
statement reporting obligations. As with any valuation
methodology, the methodologies used are based upon a number of
estimates and assumptions that may not be accurate or complete.
Different parties with different assumptions and estimates or
methodologies could derive a different estimated value per share,
and this difference could be significant. The estimated value per
share of Series B Preferred Stock is not audited and does not
represent a determination of the fair value of the Companys
assets or liabilities based on U.S. generally accepted accounting
principles (GAAP), nor does it represent a liquidation value of
the Companys assets and liabilities or the amount at which the
Companys shares of Series B Preferred Stock would trade on a
national securities exchange.

Accordingly, with respect to the estimated value per share, the
Company can give no assurance that:

Further, the Company did not make any adjustments to the
valuation for the impact of other transactions occurring
subsequent to June 30, 2016, including, but not limited to, (1)
net operating income earned and dividends declared, (2) changes
in leases, tenancy or other business or operational changes, (3)
additional investments or dispositions of assets in the
Portfolio, and (4) the issuance of additional shares of preferred
stock senior to or on parity with the Series B Preferred Stock as
to priority at liquidation. Because of, among other factors, the
high concentration of the Companys total assets in real estate,
changes in the value of individual assets in the Portfolio or
changes in valuation assumptions could have a significant impact
on the value of the Series B Preferred Stock. The estimated value
per share of Series B Preferred Stock also does not take into
account any disposition costs or fees for real estate properties,
debt prepayment penalties that could apply upon the prepayment of
certain of the Companys debt obligations or the impact of
restrictions on the assumption of debt.

Forward-Looking Statements

The foregoing includes forward-looking statements within the
meaning of the Federal Private Securities Litigation Reform Act
of 1995. The Company intends that such forward-looking statements
be subject to the safe harbors created by Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements
include statements regarding the estimated values of the
Portfolio and the Companys shares of Series A Preferred Stock and
Series B Preferred Stock, as well as the assumptions on which
such statements are based, and generally are identified by the
use of words such as may, will, seeks, anticipates, believes,
estimates, expects, plans, intends, should or similar
expressions. Further, forward-looking statements speak only as of
the date they are made, and the Company undertakes no obligation
to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to
future operating results over time, unless required by law.
Actual results may differ materially from those contemplated by
such forward-looking statements. The appraisal methodologies for
the Companys real estate properties assumes that investors would
be willing to invest in the Portfolio at similar capitalization
rates. Though the estimates of the fair market value of the
properties in the Portfolio reflect Duff Phelps best estimates,
the Company can give no assurance in this regard. Even small
changes to these assumptions could result in significant
differences in the appraised values of the properties in the
Portfolio and the estimated value per share of Series B Preferred
Stock. These statements also depend on factors and other risks
identified in Part I, Item IA of the Companys Annual Report on
Form 10-K for the year ended December 31, 2015, as filed with the
Securities and Exchange Commission, or SEC, as updated by the
Companys subsequent Quarterly Reports on Form 10-Q, as filed with
the SEC. Actual events may cause the value and returns on the
Companys investments to be less than those used for purposes of
assisting the Company with estimating the value per share of its
Series B Preferred Stock.

About Bluerock Residential Growth REIT, Inc. (NYSEMKT:BRG)

Bluerock Residential Growth REIT, Inc. is a real estate investment trust. The Company’s business consists of investing in and operating multifamily communities. The Company operates through real estate assets segment. Its businesses are conducted through its operating partnership, Bluerock Residential Holdings, L.P. Its principal business objective is to generate risk-adjusted investment returns by assembling a portfolio of apartment properties located in growth markets and by implementing its investment strategies to achieve sustainable long-term growth in both its funds from operations and net asset value. The Company’s portfolio consists of interests in over 20 properties (over 10 operating and approximately six development properties). Its other acquired properties include Springhouse, North Park Towers, Alexan CityCentre, ARIUM Grandewood, Alexan Southside Place, Cheshire Bridge, Sovereign, Flagler Village and Lake Boone Trail.

Bluerock Residential Growth REIT, Inc. (NYSEMKT:BRG) Recent Trading Information

Bluerock Residential Growth REIT, Inc. (NYSEMKT:BRG) closed its last trading session down -0.02 at 13.07 with 326,349 shares trading hands.