Contract analysis

I. Executive Summary The purpose of this memorandum is to present and analyze the permanent financing alternatives available to Fairwater Real Estate Investment Trust ("Fairwater" or the "Company") and Fairwater Operating Partnership, L.P. (the "Operating Partnership" or "Fairwater OP") for the $240,000,000 take-out of the existing bridge credit facility (the "Bridge Facility") provided by a syndicate of lenders led

II. Background and Current Financing Profile A. Sun Belt Portfolio Overview The Sun Belt Portfolio consists of fourteen (14) multifamily residential communities comprising approximately 4,200 apartment units, distributed across five states in the southeastern United States. The portfolio was acquired from Meridian Sunstone Holdings LLC, a Delaware limited liability company owned by Victor L. Castaneda (51% membership

III. Financing Alternatives Analyzed A. Alternative 1: CMBS Conduit — Clarendon Metropolitan Insurance Company

1. Overview of Proposal. Clarendon Metropolitan Insurance Company (NAIC No. 38921) is a New York-domiciled insurance company with its principal office at 1 MetroTech Center, Brooklyn, New York 11201. Clarendon Metropolitan is an active originator of commercial real estate mortgage loans for securitization through its CMBS conduit program. Garrett W. Hollister, Head of CMBS Originations, is the designated contact for

2. Key Economic Terms. The key economic terms of the Clarendon Metropolitan CMBS proposal are as follows: The DSCR of 1.476x under the CMBS proposal represents a significant improvement over the current Bridge Facility DSCR of 1.169x and provides substantial cushion above typical CMBS minimum debt service coverage thresholds (generally 1.20x to 1.25x for multifamily assets). This improvement is attributable to both t

3. Structural Features. The Clarendon Metropolitan CMBS loan would be structured as a non-recourse mortgage loan with a standard CMBS carve-out guaranty. The principal structural features are as follows: Recourse. The loan will be non-recourse to the borrowers, with liability limited to the collateral securing the loan, except with respect to certain standard CMBS carve-out exceptions. Fairwater Real Estate Investmen

4. Advantages. The Clarendon Metropolitan CMBS structure offers the following advantages relative to the other alternatives under consideration: (a) Lowest fixed rate. The 6.25% fixed rate is the lowest among the three alternatives, providing certainty of debt service cost for the full ten-year loan term and eliminating interest rate risk. This rate compares favorably to the estimated agency rate of 5.85%–6.15% (for

5. Disadvantages / Risks. Notwithstanding the significant advantages of the CMBS structure, the following disadvantages and risks should be carefully considered: (a) Limited prepayment flexibility. The two-year lockout period (through approximately November 2027) followed by defeasance-only prepayment is the most restrictive prepayment regime among the three alternatives. During the lockout period, no prepayment of a

1. Overview. The Thackeray Holdings ("Fannie Mae") Delegated Underwriting and Servicing ("DUS") program and the Harborview Partners LLC ("Freddie Mac") Optigo multifamily lending program are two government-sponsored enterprise programs designed specifically for the financing of multifamily residential properties. These programs offer competitive fixed-rate permanent financing for stabilized multifamily assets and rep

2. Estimated Economic Terms. The potentially lower interest rate range (5.85%–6.15%) reflects the generally tighter credit spreads available through agency multifamily programs, which benefit from the implicit government support of Fannie Mae and Freddie Mac and the deep liquidity of the agency mortgage-backed securities market. However, we emphasize that these are estimated rates and no formal rate quote or term she

3. Structural Features. Agency multifamily loans share many structural features with CMBS loans but are generally considered to be somewhat less restrictive in several key respects: Recourse. Agency multifamily loans are non-recourse to the borrower, with standard carve-out guaranty provisions similar to those in CMBS transactions. The scope of the carve-out guaranty is generally comparable to CMBS carve-outs, coveri

4. Advantages. (a) Potentially lower interest rate. The estimated agency rate of 5.85%–6.15% is potentially lower than the 6.25% CMBS rate, which would further reduce debt service costs and enhance distributable cash flow. If an agency rate at or below 6.00% could be achieved, the annual interest savings relative to the CMBS alternative would be approximately $600,000 or more. (b) More flexible prepayment provisions.

5. Disadvantages / Risks. (a) No term sheet in hand. The most significant disadvantage of the agency alternative is that no formal proposal, term sheet, or rate indication has been obtained from a DUS lender or Freddie Mac Optigo seller/servicer. Pursuing the agency path would require Fairwater to initiate a new solicitation process, identify and engage an appropriate DUS lender or Optigo seller/servicer, submit a fo

1. Overview. The third alternative under consideration is a traditional permanent mortgage loan from one or more commercial bank lenders. A bank permanent loan could potentially be structured with existing members of the Bridge Facility syndicate (Kensington National Bank, N.A., Pinnacle Trust Company, and Greystone Commerce Bank, each of which has an existing lending relationship with Fairwater) or with new bank len

2. Estimated Economic Terms. We note that the estimated fixed rate of 6.50%–7.00% assumes the execution of an interest rate swap to convert the floating rate to a synthetic fixed rate. The use of an interest rate swap adds complexity to the transaction structure, including swap counterparty credit risk, documentation of an ISDA Master Agreement and Credit Support Annex, ongoing swap valuation and collateral posting r

3. Structural Features. Recourse. Bank permanent mortgage loans typically carry some level of ongoing recourse to the borrower and guarantor. While the degree of recourse will be subject to negotiation, banks generally require at least partial recourse for portfolio loans of this size, and full recourse is not uncommon. The recourse structure under a bank permanent loan would represent a significant increase in guara

4. Advantages. (a) Maximum prepayment flexibility. Bank permanent loans offer the most flexible prepayment provisions among the three alternatives, with many bank loans permitting open prepayment at par or prepayment with a modest and declining premium. This flexibility is valuable if Fairwater wishes to refinance, recapitalize, or dispose of Sun Belt Portfolio properties during the loan term. (b) Shorter documentati

5. Disadvantages / Risks. (a) Higher all-in interest rate. The estimated fixed rate of 6.50%–7.00% (via swap) is 25 to 75 basis points higher than the CMBS rate of 6.25%, resulting in higher annual interest expense. At the midpoint estimate of 6.75%, the annual interest cost would be approximately $16,200,000, compared to $15,000,000 under the CMBS loan — a difference of $1,200,000 per year. (b) Shorter term. Bank le

IV. Comparative Summary Table The following table provides a side-by-side comparison of the three permanent financing alternatives:

V. Strategic Considerations for Fairwater A. Timeline Constraints The timeline for completing the permanent financing is a critical strategic consideration. The key dates and deadlines are as follows: • Bridge Facility maturity date: December 31, 2025 (approximately 4.5 months from the date of this memorandum). • Target permanent loan closing date: November 28, 2025 (approximately 3.5 months from the date of this mem

VI. Recommendation Based on our comprehensive analysis of the three permanent financing alternatives, Calderwood & Harkness recommends that Fairwater proceed with the Clarendon Metropolitan Insurance Company CMBS structure for the permanent take-out of the $240,000,000 Bridge Facility. Our recommendation is based on the following principal reasons:

1. Lowest cost of capital. The 6.25% fixed interest rate offered by Clarendon Metropolitan is the most competitive available option with a definitive term sheet in hand. This rate results in annual interest expense of approximately $15,000,000, representing savings of approximately $7,392,000 per year relative to the Bridge Facility (interest-only at 9.33%) and estimated savings of approximately $1,200,000 per year r

2. Longest term. The ten-year term (November 2025 through November 2035) provides maximum maturity extension and eliminates refinancing risk for a full decade. This term is well-matched to Fairwater's long-term hold strategy for the Sun Belt Portfolio and is significantly longer than the five-to-seven-year terms available from bank lenders.

3. Non-recourse structure. The non-recourse structure, with Fairwater REIT's liability limited to standard carve-out events, significantly reduces the Company's guarantor exposure compared to the full recourse guaranty under the Bridge Facility and the ongoing recourse that bank lenders would likely require. This non-recourse feature improves Fairwater's balance sheet presentation, reduces contingent liability, and i

4. DSCR improvement. The projected DSCR under the CMBS loan is 1.476x, a substantial improvement from the current Bridge Facility DSCR of 1.169x. This DSCR level provides meaningful cushion above typical CMBS minimum thresholds (1.20x–1.25x), reducing the risk of cash management triggers, special servicer intervention, or other adverse consequences during the loan term. The DSCR improvement also enhances Fairwater's

5. Term sheet in hand. Clarendon Metropolitan has delivered a definitive term sheet dated August 25, 2025. This enables Fairwater to move immediately into the application, commitment, and documentation phases, with a realistic path to closing by the target date of November 28, 2025 — well in advance of the December 31, 2025 Bridge Facility maturity. The agency and bank alternatives would require new solicitation proc

6. Exit fee waiver. Closing the CMBS permanent loan by November 28, 2025 would constitute repayment of the Bridge Facility from permanent CMBS financing proceeds within the timeframe specified in the Bridge Facility for