SecProbe.io

CORRESP
1
filename1.htm

Correspondence

July 30, 2009

United States Securities and Exchange Commission

450 Fifth Street NW

Mail Stop 4561

Washington, D.C. 20549

    Attn:

    Mr. Tom Kluck, Legal Branch Chief

    Ms. Cicely Lomothe, Accounting Branch Chief

    Ms. Jaime John, Staff Accountant

    Ms. Erin Martin, Attorney-Advisor

    Re:

    NetREIT

Amendment No. 2 to Registration Statement on Form 10

Filed June 26, 2009 (originally filed May 6, 2008, File No. 001-34049)

File No. 000-53673

Amendment No. 1 to Form 10-K for Fiscal Year Ended December 31, 2008

Filed June 26, 2009 (Originally Filed May 29, 2009)

Ladies and Gentlemen:

Registrant’s responses below are responding to the comments in the Staff’s letter of July 14, 2009 regarding the
above-referenced Form 10 and Form 10-K filings and the amended Form 10 and Form 10-K filed on June 26, 2009.

Registrant’s responses below are presented in the same numbers as the Staff’s comments in that letter.

Form 10 and Form 10-K

Item 1A Risk Factors

Our risks of losing property through a mortgage loan default ....page 14

    1.

    On July 29, 2009, Registrant has amended its filings on
Form 10 (pages 35 and 44) and Form 10-K (pages 23
and 51) to revised disclosure regarding the status of the Garden Gateway Plaza loan. Following discussions
with the Staff, Registrant determined not to revise its risk factor disclosure regarding the status of this
loan.

The changes made to both documents are as follows:

Indebtedness

Mortgage Debt

The following table presents
information as of December 31, 2008 on indebtedness encumbering our properties, excluding
advances under any credit facility we may obtain. The Company is
current in its payments on each of these loans.

    Principal

    Current

    Balance at

    Property

    Amount

    Interest Rate

    Maturity Date

    Maturity

    Havana/Parker Complex

    $
    3,459,374

    6.51
    %

    July 2016

    $
    2,844,980

    Garden Gateway Plaza (1)

    $
    10,670,864

    6.08
    %

    April 2014

    $
    9,387,287

    World Plaza

    $
    3,522,227

    5.31
    %

    February 2012

    $
    3,074,416

    Executive Office Park (2)

    $
    20,000

    6.25
    %

    December 2009

    Revolving line

    Waterman Plaza

    $
    3,834,492

    6.50
    %

    September 2015

    $
    3,304,952

    (1)

    Mortgage is cross-collateralized by all three buildings comprising
the Garden Gateway Plaza. Mortgage has release clause for each
building.

    (2)

    Borrowed under the Mile High Credit Facility, a $6,597,500 revolving
line of credit secured by Executive Office Park and Regatta Square.

Our sale
The Company is current in its payments on each of these loans. The deed
of
trust for the loan secured by Garden Gateway Plaza (the Garden Gateway Loan) contains
a 5.99%
covenant not to transfer an
interest in Garden Gateway Plaza resulted
the property. The lender may,
in our breach
its discretion, waive this restriction. We had advised the real estate broker
of our covenant not
intent
to transfer an interest in
thisthe property underat
the Garden Gateway Plaza loan documents
time we negotiated this sale.
We have requested
believed the lender would agree to our transfer and, based on
this belief, we entered the agreement to transfer the undivided
interest in the property. However, we did not receive
the lender’s consent and
written
waiver
of this restriction prior
to this
our transfer. Based on
We have contacted
the lender’s response thus far, we expect to resolve this
matter at a cost of less than $50,000
issue. Should we
If it does
not reach an agreement and
grant its waiver,
the lender accelerates
could claim our breach of this covenant and pursue one or more remedies, including
immediate payment of the entire
loan, we believe we have
balance. In the event that
the financial resources
lender enforces its rights
to pay call
the loan if we are required to do so. Please see Item 2 –
Financial Information – Management
as immediately due and payable that could materially affect
the Company’s
Discussion
ability to repay its obligations
under the revolving line of credit, such that the revolving line of
credit facility may also be considered in default
and Analysis Of Financial Condition
may give that lender similar enforcement rights to call its loan as immediately due
and Results Of Operations – Liquidity
payable. If the lender does not consent to a waiver, we believe we have the ability
and Capital Resources – Financing Activities for further discussion of
resources to cure
this matter
breach and / or financially meet our obligations to the
lenders under these loans.

1

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

At December 31, 2008, we had approximately $4.8 million in cash and cash equivalents compared to
$4.9 million at December 31, 2007. We expect to obtain additional mortgages collateralized by some
or all of our real property in the future. We anticipate to continue to raise additional capital
through the issuance of additional equity securities. We expect the funds from operations,
additional funding from mortgage notes payable and securities offerings will provide us with
sufficient capital to make additional investments and to fund our continuing operations for the
foreseeable future.

Investing Activities

Net cash used in investing activities was approximately $21.4 million in 2008 consisting primarily
of $23.0 million to purchase three properties and property improvements reduced by the proceeds
from seven sales of undivided interests in four properties resulting in cash proceeds received of
$3.9 million and a decrease of $1.7 million in deposits at a bankrupt institution. Net cash used in
investing activities during the year ended December 31, 2007 was approximately $34.8 million, which
consisted of the purchase of 5 properties and improvements totaling $38.4 million and investment in
mortgage receivables of $1.9 million offset by the proceeds from the sale of real estate of $6.0
million.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2008 was approximately
$20.6 million, which primarily consisted of $22.7 million net proceeds from issuance of common
stock, offset by dividend payments of $1.4 million and net pay down of mortgage notes payable of
$0.9 million. Net cash provided by financing activities for the year ended December 31, 2007 was
approximately $33.3 million, which primarily consisted of $19.1 million proceeds received from the
long-term financing of three of our properties and $15.6 million net proceeds from issuance of
common stock offset by $.2 million of principal repayments on mortgages note payables and dividend
payments of $1.1 million.

Our
saleThe Company is in default of a 5.99%
interest incovenant of its loan secured by
Garden Gateway Plaza resulted in our breachwith a balance
outstanding as of December 31, 2008 of our covenant
not to transfer an interest$10.7 million. The
Company is in this property under the Garden
Gateway Plaza loan documents. We soldprocess of requesting
a waiver of default from this undivided interest without
first receiving the lender’s consent or waiver. In
late June 2009, we submitted our written request
toIf the lender
forenforces its consent and waiver both
for this transfer and our proposed transfer ofright to call the loan, the
Company would most likely pay the entire
propertyloan down from available resources to a
newly formed limited partnership, for which welevel
that the lender would be sole general partner
andmore than likely renegotiate the terms on a more
favorable basis to the majority limited
partnerCompany. In its latest
responseIf this
effort is unsuccessful, the Company would attempt to
replace the loan with a loan from anotherlender has requested a waiver fee of one quarter of one percent
(approximately $27,000) and our reimbursement of its legal
expenses. WeIf we are
awaitingunable to find another lender, the
lender’s review ofCompany may be forced to
sell the property’s status and
its requested legal structure for its consent and waiver. Based
onrepay the loan or surrender the
lender’s response thus far, we
expectproperty to resolve this matter at a
cost of less than $50,000. We believe it is in the
lender’s best interests not to declare a default and
accelerate payment of this otherwise fully performing loanthrough
foreclosure proceedings. In the event we cannot reach
agreement andthat the lender does
accelerate payment ofenforces its
rights to call the loan, we believe we haveas immediately due and payable that could
materially affect the financial
resourcesCompany’s ability to
payrepay its obligations
under the loan. We could do so by using our cash on
handrevolving line of credit, additional
borrowings under our presentsuch that the revolving line
of
credit facility may also be considered in default
and ,may give that
lender similar enforcement rights to call its loan as
necessary, funds from additional financing secured by one or more
of our other unencumbered propertiesimmediately due
and payable.

2

The registrant acknowledges the following:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

    •

    staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from
taking any action with respect to the filing; and

    •

    The Company may not assert staff comments as a defense in any proceeding initiated by the Commission
or any person under the federal securities laws of the United States.

If, after review of this letter and the amended filings, you have additional comments or questions, please contact the
undersigned at your convenience.

Very truly yours,

s/Kenneth W. Elsberry

KENNETH W. ELSBERRY

CHIEF FINANCIAL OFFICER

    cc:

    Ms. Jaime John, Staff Accountant

Ms. Cicely Lamothe, Accounting Branch Chief

Ms. Kristina Aberg, Attorney-Advisor

Mr. Tom Kluck, Legal Branch Chief

2