Contract analysis

I. INTRODUCTION AND PURPOSE Respondent Pellegrino Capital Group LLC ("PCG") respectfully submits this Confidential Mediation Position Statement to Mediator Raymond Alcazar in advance of the mediation session scheduled for February 12, 2024. This statement is provided solely for Mr. Alcazar's use in facilitating settlement discussions and is not to be disclosed to the opposing party, Meridian Shores Hospitality LLC ("

II. BACKGROUND AND PARTIES A. The Parties Pellegrino Capital Group LLC. PCG is a Florida limited liability company with its principal office at 1900 Bayshore Boulevard, Suite 1400, Tampa, Florida 33606. PCG is a family office controlled by its Managing Member, Dominic R. Pellegrino, and manages approximately $1.2 billion in assets under management across a diversified portfolio of hospitality, multifamily residential

III. PROCEDURAL HISTORY The following timeline summarizes the key events leading to this mediation: June 15, 2022: The fifth anniversary of the Operating Agreement, marking the date on which the call option set forth in OA Section 12.4 first became exercisable by PCG as Manager. Under Section 12.4(a), the Manager has the right, exercisable at any time on or after the fifth anniversary, to purchase all (but not less t

IV. SUMMARY OF PCG'S POSITION ON FAIR MARKET VALUE The central question in this dispute is the fair market value of PGV's assets as of December 31, 2022, for purposes of determining the buyout price for MSH's 35% membership interest under OA Section 12.4. Three appraisals have been or are being prepared: the Whitfield Appraisal commissioned by PCG ($118.0 million), the Beacon Appraisal commissioned by MSH ($151.5 mil

1. Reliance on Income-Only Approach. The Beacon Appraisal relied exclusively on a discounted cash flow analysis, without any consideration of the sales comparison approach. This singular reliance on the income approach is a significant methodological deficiency in the context of a luxury hotel appraisal where active comparable transaction data is readily available. The Appraisal Institute's Uniform Standards of Profe

2. Below-Market discount Rate. The Beacon Appraisal employed an 8.5% discount rate in its DCF analysis — a rate that is significantly below the market range for luxury full-service beachfront resorts on Florida's Gulf Coast. Published discount rate surveys from CBRE Hotels, Thackeray Consulting Group, and other authoritative sources consistently report discount rates in the range of 9.5% to 11.0% for properties of th

3. Below-Market Terminal Capitalization Rate. The Beacon Appraisal applied a terminal capitalization rate of 7.75%, which is similarly aggressive and unsupported by recent comparable sales evidence. Terminal capitalization rates for luxury Gulf Coast hotel transactions have generally ranged from 8.5% to 10.0% in recent years, reflecting the inherent risk of projecting value at the end of a multi-year holding period.

4. Unfounded Deferred Maintenance Adjustment. The Beacon Appraisal includes an upward value adjustment of $8,200,000 for alleged "deferred maintenance" items. This adjustment is both factually baseless and analytically improper, as discussed in detail in Section VI below. In brief, the Property underwent a comprehensive $24.3 million renovation in 2017–2019 and has been continuously maintained through PGV's operating

5. Franchise Agreement Intangible Value. The Beacon Appraisal assigned additional value to the Aurelian franchise agreement as an intangible asset, on the theory that the franchise agreement was executed at "below-market" terms and therefore contributes incremental value above what the Property's cash flows would otherwise support. This adjustment is not standard practice in hotel real property appraisals. The Operat

V. PCG'S POSITION ON THE BAD-FAITH PENALTY CLAIM (OA SECTION 12.7) A. The Contractual Standard OA Section 12.7 provides, in relevant part: "If the Arbitrator determines that the Manager exercised the Call Option in bad faith or with the intent to materially understate Fair Market Value, the Purchase Price shall include a penalty of up to twenty-five percent (25%) of the determined Fair Market Value of the Redeemed In

VI. PCG'S POSITION ON THE DEFERRED MAINTENANCE CLAIM MSH contends, through the Beacon Appraisal and in its arbitration filings, that PCG as Manager of PGV breached OA Section 8.3 by failing to fund approximately $8,200,000 in deferred maintenance items at the Property. MSH further asserts that this alleged deferred maintenance should be added as an upward adjustment to the Property's appraised value (on the theory th

VII. SETTLEMENT ANALYSIS AND PCG'S NEGOTIATING POSITION A. Risks and Costs of Continued Arbitration The arbitration is proceeding before the Honorable Margaret Liu Chen (Ret.) at JAMS in Jacksonville, Florida. If the parties are unable to resolve this matter through mediation, the dispute will proceed to a merits hearing at which the arbitrator will be required to (i) determine the final fair market value of PGV's as

VIII. CONFIDENTIALITY This Confidential Mediation Position Statement is submitted solely for the purpose of facilitating the mediation session scheduled for February 12, 2024, before Mediator Raymond Alcazar. This statement is confidential and is intended exclusively for Mr. Alcazar's review and use in connection with the mediation. This statement is not to be disclosed to Meridian Shores Hospitality LLC, its princip

IX. CONCLUSION Pellegrino Capital Group LLC is committed to resolving this dispute through mediation on fair and reasonable terms that reflect the true value of the Joint Venture's assets and the Operating Agreement's express buyout mechanics. PCG exercised the call option in good faith, in strict compliance with the Operating Agreement, and based upon an independent, professionally prepared MAI appraisal. PCG is wil