Kevin and Martin,
Thank you both for your continued engagement on this matter. As Kevin and I discussed by phone earlier today, I am writing to provide a comprehensive status update on the lease negotiation for Building 4, Cranbury Commerce Center, 200 Prospect Plains Road, Cranbury, NJ 08512 (Block 24, Lot 17.04, Township of Cranbury, Middlesex County), and to confirm that the matter is being placed in dormant status following MCB's internal supply chain review. This email memorializes our discussion and provides a written record for all stakeholders.
**1. Background and Current Posture**
As you know, this matter involves MCB's proposed 10-year lease of approximately 297,500 square feet (285,000 SF warehouse plus 12,500 SF office/mezzanine) at Building 4 from Stonebridge Industrial Realty Trust, LP, with aggregate base rent of $12,000,000 on a pre-escalation basis as characterized in the LOI. The facility was intended to consolidate MCB's East Coast fulfillment operations and replace the Edison, NJ distribution center at 15 Kilmer Road, Edison, NJ 08817, whose lease expires in February 2024.
The LOI (LOI-2022-CCC-B4) was executed on June 22, 2022, and the parties progressed through two rounds of lease drafting:
- Landlord's first draft lease was delivered by Whitfield, Barr & Calloway LLP on July 18, 2022. - C&H delivered our first markup on August 12, 2022. - Landlord's second draft was received on September 2, 2022. - C&H's second markup was substantially complete but was never transmitted to landlord's counsel due to the intervening events described below.
**2. The Revised Site Plan and Its Operational Impact**
On September 14, 2022, Stonebridge delivered a revised site plan for Building 4. The revisions were driven by conditions imposed by the Township of Cranbury Planning Board in connection with Stonebridge's parallel application for preliminary site plan approval for Building 5 (Block 24, Lot 17.05). Specifically, the Township required Stonebridge to:
- Realign the shared internal access drive serving Buildings 4 and 5; - Expand the stormwater detention basin on the west side of Building 4 by approximately 1.8 acres; and - Relocate Building 4's truck court from the south side to the east side of the building.
The revised site plan has the following material impacts on Building 4:
- **Warehouse space reduced** from approximately 285,000 SF to approximately 261,000 SF—a loss of 24,000 SF—due to the reconfigured loading dock apron encroaching into the building's southeast corner. Total rentable area drops from 297,500 SF to 273,500 SF. - **Dock-high doors reduced** from 48 to 38; **drive-in doors reduced** from 4 to 2. - **Trailer parking reduced** from 85 spaces to 62 spaces. - **Potential clear-height reduction** in two eastern bays from 36 feet to 32 feet due to structural modifications.
These reductions fall below MCB's minimum operational requirements as determined by MCB's logistics modeling. In particular:
- MCB requires a minimum of **42 dock-high doors** for peak-season (Q4 holiday) throughput; the revised plan provides only 38. - MCB requires a minimum of **75 trailer parking spaces**; the revised plan provides only 62.
Following MCB's internal supply chain review, the conclusion is that the revised configuration is operationally deficient for MCB's East Coast fulfillment needs in its current form.
**3. C&H's September 28 Letter to Landlord's Counsel**
On September 28, 2022, we sent a letter to Thomas R. Calloway at Whitfield, Barr & Calloway LLP outlining MCB's concerns and requesting the following specific deliverables from Stonebridge before negotiations could resume:
(a) Final civil engineering drawings approved by the Township of Cranbury Planning Board; (b) A structural engineer's report confirming clear heights in all bays; (c) A revised landlord's work scope and cost estimate; and (d) Stonebridge's position on rent adjustment and TI allowance recalculation to reflect the reduced square footage.
That letter expressly preserved all of MCB's rights and stated that MCB does not waive any claims. As of today's date, neither Stonebridge nor WBC has provided a substantive response to our September 28 letter or delivered any of the requested materials. I can forward a copy of that letter to Martin if he does not have it in his files; Kevin received a copy at the time it was sent.
**4. LOI Status**
The original LOI exclusivity period and lease execution deadline of September 30, 2022 has passed. The LOI was extended by mutual agreement of Kevin and Rebecca Hartwell (SVP Leasing, Stonebridge) to November 15, 2022. No further extension has been agreed upon, and absent engagement from Stonebridge, the extended LOI will lapse on November 15, 2022.
As a reminder, the LOI was non-binding except for (i) confidentiality, (ii) exclusivity (now expired), and (iii) broker commission provisions (commissions for Pinnacle Brokerage Group LLC and Velthorn Realty Advisors LLC, payable by landlord).
We recommend that MCB not seek a further extension at this time, given the unresolved site plan issues and the landlord's non-responsiveness. That said, this is ultimately a business decision for you and Martin, and we are happy to discuss the strategic considerations further if that would be helpful.
**5. Outstanding Open Lease Issues**
In addition to the threshold site plan and operational viability question, the following key lease terms remained open and unresolved at the time work was paused:
- **Landlord's Work Scope.** The original scope—LED lighting, ESFR sprinkler upgrade, leveler replacement at all dock doors, office refresh, and 6 EV charging stations—carried an estimated cost of $1,850,000 and must be revised to reflect the new building configuration. As a reminder, landlord's work is landlord's responsibility and is not charged against the TI allowance.
- **Tenant Improvement Allowance Recalculation.** The TI allowance was originally calculated at $15.00/SF × 297,500 SF = $4,462,500. If recalculated based on the reduced 273,500 SF, the TI allowance would be $15.00 × 273,500 = $4,102,500—a reduction of $360,000. MCB's position should be that the per-SF rate should increase to offset the loss, or alternatively, that the original aggregate TI amount should be preserved. We view this as a strong negotiating position given that the reduction is entirely attributable to landlord's site plan revisions.
- **Rent Adjustment.** Year 1 base rent of $1,200,000 was based on 297,500 SF (approximately $4.03/SF/year NNN). The appropriate rent for the reduced square footage, and whether the per-SF rate should remain the same or be renegotiated, is an open business point.
- **Co-Tenancy Provisions.** Not yet agreed upon in the lease drafts.
- **Guaranty Burn-Off Terms.** The draft limited guaranty from Meridian Holdings Inc.—capped at $1,200,000 (12 months' base rent), burning off upon MCB demonstrating $75,000,000 net worth for two consecutive fiscal quarters as certified by Ashford & Whitmore CPAs LLP—remains in draft form and was never transmitted to landlord's counsel. Stonebridge continued to resist certain burn-off mechanics in the second draft lease.
- **Delivery Condition.** Tied to the revised site plan and not yet finalized.
- **Early Termination Option.** The mechanics (exercisable after Year 7 upon 18 months' prior written notice, with a termination fee equal to unamortized TI plus unamortized brokerage commissions plus 6 months' base rent) were substantively agreed upon but will require conforming to any revised economics.
**6. Fees and Budget**
Total fees incurred through today's date are approximately **$78,400**, against the original engagement estimate of $85,000–$125,000 through lease execution and delivery of tenant estoppel/SNDA. Given the dormancy, actual fees will remain well within the lower end of that range unless and until the matter reactivates.
We will issue our final monthly invoice for work performed through October 21, 2022, payable net 30 days per the May 30, 2022 engagement letter. No further fees will be incurred during the dormancy period absent direction from MCB.
**7. Environmental — No Outstanding Concerns**
For completeness, I note that the Phase I ESA completed by Blackthorn Environmental Consulting, Inc. (Report No. BEC-2022-0814, dated August 5, 2022) identified no Recognized Environmental Conditions on the subject property. One Controlled REC was noted relating to a historic dry-cleaning operation on adjacent Block 24, Lot 16, with a Classification Exception Area for tetrachloroethylene (PCE) in groundwater per NJDEP records; however, the CEA does not extend onto the subject property. Environmental risk allocation provisions were included in our lease markups and remain in the undelivered second markup. The environmental posture does not present an impediment to reactivation of this matter.
**8. Conditions for Reactivation and Next Steps**
We will hold the matter file open (Matter No. 1011-00007) and can mobilize quickly if the matter reactivates. Reactivation would be appropriate upon:
1. Receipt by MCB of revised civil engineering drawings from Stonebridge, approved by the Township of Cranbury Planning Board, confirming the final configuration of Building 4; 2. MCB's positive reassessment of operational viability of the facility under the revised configuration (specifically, whether dock count, trailer parking, and clear heights meet MCB's minimum requirements); and 3. Agreement in principle between the parties on renegotiated key economic terms (rent, TI allowance, landlord's work scope) reflecting the actual deliverable square footage and building configuration.
As a timing note, MCB's existing Edison distribution center lease does not expire until **February 2024**, which provides a reasonable window for this matter to be resolved without disrupting MCB's operations. That said, lead time for build-out and tenant improvements should be factored into any go-forward timeline, and that window will begin to narrow meaningfully by mid-2023.
If Stonebridge is ultimately unable or unwilling to address the site plan deficiencies, MCB may wish to re-engage Daniel Tsui at Pinnacle Brokerage Group LLC to resume the site search for alternative facilities. We are happy to coordinate with Dan's team if and when that becomes appropriate.
I would suggest a check-in call among us in approximately 60 days—late December 2022—to reassess the status, unless Stonebridge responds to our September 28 letter sooner, in which case we will of course be in touch immediately.
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Kevin and Martin, please do not hesitate to reach out if you would like to discuss any of the foregoing. Cynthia and I are available at your convenience. As a reminder, all communications with Stonebridge and Whitfield, Barr & Calloway should continue to be channeled through our office.
Thank you both for your attention to this matter and for your continued confidence in our engagement team. We look forward to working with you on next steps as they develop.
Please note that our undelivered second markup of the lease, the draft limited guaranty, and our Phase I ESA review memorandum are maintained in our matter file and are available upon request.
Best regards,
**Angela Fontaine** Partner, Real Estate Group Calderwood & Harkness LLP 1285 Avenue of the Americas, 40th Floor New York, NY 10019 T: (212) 554-7130 E: afontaine@calderwoodharkness.com
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