Cottonwood Communities to Acquire RealSource

The deal brings combined portfolio to over 11,000 units, streamlines management operations, and aligns investor interests.

June 27, 2025

Cottonwood Communities to Acquire RealSource in Strategic Multifamily Merger

Deal brings combined portfolio to over 11,000 units, streamlines management operations, and aligns investor interests.

Cottonwood Communities, Inc. (CCI) is set to take a major step forward in its multifamily real estate strategy. On June 25, the company signed a merger agreement with RealSource Properties, Inc. (RS), in a stock-for-stock and unit-for-unit transaction. If all conditions are met, CCI will add 11 multifamily properties—3,565 units—to its portfolio, along with management contracts for seven third-party properties totaling another 1,353 units. The combined entity will span 48 communities and more than 11,000 units across 13 states.

How the deal is structured

This is a two-part merger. RS will merge into a Cottonwood subsidiary, while RS’s operating partnership will merge with CCI’s operating partnership (CROP). Shareholders and unitholders of RS will receive 0.8893 shares or units of CCI or CROP for each RS share or RSOP unit they currently hold. That ratio may change if certain post-closing adjustments are triggered—these are based on potential legal, operational, or environmental liabilities identified after the deal closes.

CCI is also acquiring RS’s property and asset management infrastructure as part of an internalization agreement. This move brings RS’s external advisor, property manager, and a key personnel provider under the CCI umbrella. It simplifies operations and reduces reliance on third parties, while keeping in place the teams already familiar with RS’s properties.

What needs to happen before closing

There are several hurdles to clear before the merger becomes official. These include:

• Shareholder approval


• Legal sign-offs


• Confirmation that the investor base complies with private placement rules

If the number of unaccredited investors in either RS or RSOP exceeds 35, the transaction cannot proceed under current terms.

Both sides have leeway to walk away from the deal under defined conditions. For example, RS can terminate if it receives a better offer or if CCI fails to meet its obligations. If the RS board backs out in favor of a superior proposal, RS may owe CCI a $7.95 million termination fee.

On the other side, CCI can exit if RS materially breaches the agreement or fails to secure required votes. There’s also an outside closing date of November 25, 2025—if the deal isn’t done by then, either party can pull the plug.

Built-in safeguards and adjustments

The agreement includes mechanisms for post-closing adjustments. CCI has up to two years to initiate reductions to the exchange ratio if specific issues arise—particularly around environmental liabilities or inaccuracies in RS’s disclosures. Similarly, RS can request a downward adjustment to its side of the exchange ratio if CCI breaches any of its obligations.

These adjustments are subject to caps:

• CCI-side liabilities: capped at $30 million


• RS-side liabilities: capped at $20 million

CCI is also protected from footing the bill for certain excess transaction expenses, certificate of occupancy issues, or one-off land sales related to the RS properties. These are all built into the exchange ratio mechanics.

What the internalization agreement adds

Ahead of the merger, RS signed a separate agreement to internalize its advisory and property management functions. The entities involved will be folded into RSOP, and their ownership will receive approximately 2.14 million partnership units as consideration. Those units will then convert into CROP units at the time of the merger.

This internalization reduces conflicts of interest and aligns incentives, while preserving continuity in the management of both RS-owned and third-party properties. It also waives certain legacy compensation rights, including advisory termination and disposition fees.

The agreement includes customary protections. Transactions outside the normal course of business require dual sign-off from RS’s independent directors and the CCI team. The owners of the acquired entities are responsible for certain indemnification obligations for up to 12 months post-closing, with a shared liability cap.

Looking ahead

To support the merged entity, CCI’s advisor plans to reduce its management fee from 1.5% to 1.25% of net asset value. CCI executives also intend to invest $3 million into the company, split evenly between common shares and preferred stock. The board has approved a gradual reduction in the distribution rate—from $0.73 to $0.68 per share—to better reflect anticipated performance post-merger. This will start with the July 31 record date.

The combined structure offers CCI increased scale, expanded geographic reach, and deeper in-house capabilities. As the transaction moves toward closing, investors will be tracking key milestones closely—from regulatory approvals to final adjustments in share conversion terms.