CALDERWOOD & HARKNESS LLP
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Ian Blackwood, Partner; Sophie Tremblay, Lead Associate
FROM: Daniel Obi, Associate, Banking & Finance
DATE: July 15, 2022
RE: Survey and Flood Certification Summary — 42 Mortgaged Hotel Properties in Connection with the $700,000,000 Senior Secured Term Loan B Refinancing — Verimark Hospitality Group Inc.
Engagement Number: 1016-00009
Crescent Harbor Loan Number: CHB-LF-2022-07814
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I. Purpose and Executive Summary
This memorandum summarizes the status of ALTA/NSPS land title surveys and FEMA flood zone determinations for the forty-two (42) hotel properties (collectively, the "Mortgaged Properties") owned by Verimark Resort Properties LLC, a Delaware limited liability company ("VRP"), and Palmetto Beachfront Hotels LLC, a Florida limited liability company ("Palmetto"), that constitute the mortgaged real property collateral under the $700,000,000 Senior Secured Term Loan B Credit Agreement, dated as of July 21, 2022 (the "Credit Agreement"), among Verimark Hospitality Group Inc., a Delaware corporation ("VHG" or the "Borrower"), the Guarantors party thereto, Crescent Harbor Bank, N.A., a national banking association ("Crescent Harbor"), as Administrative Agent and Collateral Agent, and the Lenders party thereto from time to time (collectively, the "Lenders"). This memorandum is intended to assist the deal team in confirming the completeness and adequacy of the survey and flood certification deliverables required as conditions to the issuance of mortgagee title insurance policies and as post-closing obligations under the transaction documents.
The forty-two Mortgaged Properties are located across twelve (12) states, with the following geographic distribution: Florida (12 properties), New York (6 properties), California (5 properties), Texas (4 properties), Georgia (3 properties), Colorado (3 properties), Arizona (2 properties), Illinois (2 properties), Washington (2 properties), Oregon (1 property), Nevada (1 property), and Virginia (1 property). These properties have an aggregate appraised value of approximately $2.18 billion, as determined by independent MAI appraisals obtained in connection with the refinancing, and represent a subset of VHG's total seventy-four (74) property portfolio, which is appraised at approximately $3.1 billion across eighteen (18) states. The forty-two properties selected for the mortgage collateral pool reflect those properties with the strongest revenue generation and asset value characteristics, and together represent approximately 70.3% of the total portfolio appraised value.
With respect to survey scope, existing ALTA surveys have been recertified or new surveys have been obtained for all forty-two Mortgaged Properties. Surveyor recertification updates have been addressed to Crescent Harbor Bank, N.A. (as Collateral Agent) and Continental Fidelity Title Company (as the title insurer issuing mortgagee title insurance policies in connection with the refinancing), as well as to the Borrower, the applicable property-owning subsidiary, and this firm, in accordance with the requirements of the Credit Agreement and the title insurer's underwriting guidelines.
With respect to flood certification scope, Standard Life-of-Loan Flood Hazard Determinations have been obtained for all forty-two Mortgaged Properties in compliance with the National Flood Insurance Act of 1968 (as amended), the Flood Disaster Protection Act of 1973 (as amended), the National Flood Insurance Reform Act of 1994, the Biggert-Waters Flood Insurance Reform Act of 2012, and the Credit Agreement's insurance covenants set forth in Section 7.05 thereof.
The principal findings of our review are summarized as follows:
• Thirty-eight (38) of forty-two (42) Mortgaged Properties are located in FEMA Flood Zone X (areas of minimal flood hazard, situated outside the 100-year floodplain). No mandatory flood insurance purchase requirement applies to these properties under federal law or the Credit Agreement.
• Four (4) Mortgaged Properties are located in Special Flood Hazard Areas ("SFHAs") as designated by the Federal Emergency Management Agency ("FEMA"): three (3) in Zone AE (areas subject to inundation by the 100-year flood, with base flood elevations determined) and one (1) in Zone VE (coastal high hazard areas with velocity wave action, within the 100-year floodplain, with base flood elevations determined). All four SFHA properties are located in communities participating in the National Flood Insurance Program ("NFIP"), and all four are subject to the mandatory flood insurance purchase requirement under federal law and the Credit Agreement. All four properties maintain active NFIP flood insurance policies with coverage amounts that satisfy the requirements of the Credit Agreement.
All post-closing deliverables related to surveys, flood certifications, and flood insurance must be completed on or before August 5, 2022, pursuant to the terms of the Post-Closing Letter Agreement dated as of July 21, 2022, among the Borrower, the Guarantors, and the Administrative Agent (the "Post-Closing Letter Agreement"). As described in greater detail in Section IX below, four discrete post-closing items remain outstanding as of the date of this memorandum.
II. Background — Transaction Context
A. Transaction Overview
The refinancing transaction involves the establishment of a $700,000,000 Senior Secured Term Loan B facility (the "Term Loan B" or the "Facility") to replace the existing $625,000,000 term loan B facility (the "Existing TLB") that was originated on February 14, 2020, with Greystone Federal Credit Corp. ("Greystone") serving as the administrative agent under the prior credit agreement. The Existing TLB (CUSIP 92347LAA0) is being repaid in full with proceeds of the new Facility (CUSIP 92347LAB8), together with cash on hand of the Borrower, resulting in a net incremental borrowing of approximately $75,000,000 to provide additional liquidity for permitted acquisitions and general corporate purposes. The new Facility has been arranged by Crescent Harbor Bank, N.A., acting as sole lead arranger and sole bookrunner, and will be administered by Crescent Harbor in its capacity as Administrative Agent and Collateral Agent.
The closing of the Credit Agreement is scheduled for July 21, 2022, with funding occurring simultaneously upon satisfaction of conditions precedent set forth in Article V of the Credit Agreement. The term of the Facility extends to July 21, 2029, with scheduled quarterly amortization payments of 0.25% of the original principal amount (i.e., $1,750,000 per quarter), commencing on September 30, 2022.
B. Collateral Package Overview
The Facility is secured by a first-priority lien (subject to permitted liens) on substantially all assets of VHG and the Guarantors, including, without limitation: (i) fee simple and leasehold interests in the forty-two hotel properties owned by VRP and Palmetto (the Mortgaged Properties); (ii) all personal property, fixtures, and equipment located at or used in connection with such properties; (iii) all rents, revenues, and profits derived therefrom; (iv) all equity interests in VRP, Palmetto, and other subsidiary guarantors; (v) substantially all intellectual property, including the "Verimark" trade name and related trademarks; and (vi) all deposit accounts and securities accounts maintained with the Administrative Agent or subject to deposit account control agreements. The liens securing the Term Loan B are pari passu with the liens securing the existing $400,000,000 revolving credit facility (the "RCF"), for which Crescent Harbor also serves as RCF Agent, pursuant to the terms of the Amended and Restated Intercreditor Agreement dated as of July 21, 2022, among VHG, the Guarantors, and Crescent Harbor (in its capacities as TLB Collateral Agent and RCF Agent).
C. Mortgage Deliverables
In connection with the granting of the mortgage liens on the Mortgaged Properties, new or amended mortgages, deeds of trust, or deeds to secure debt (as applicable under the law of the relevant jurisdiction) are required to be delivered and recorded across all twelve states in which the Mortgaged Properties are located — specifically, Florida, New York, California, Texas, Georgia, Colorado, Arizona, Illinois, Washington, Oregon, Nevada, and Virginia. Mortgagee title insurance policies are being issued by Continental Fidelity Title Company ("Continental Fidelity"), located at 1221 Brickell Avenue, Suite 900, Miami, Florida 33131, in aggregate insured amounts corresponding to the aggregate allocated loan amounts for the Mortgaged Properties as set forth in the Credit Agreement. Each mortgagee title insurance policy will include standard lender endorsements (including, as applicable, survey/location endorsements, comprehensive endorsements, zoning endorsements, access endorsements, and environmental protection lien endorsements) as required by the Collateral Agent and acceptable to the title insurer.
D. Surveys and Flood Certifications as Conditions Precedent
The surveys and flood certifications summarized in this memorandum are conditions to the issuance of the mortgagee title insurance policies and, in certain instances where delivery was not completed prior to closing, constitute post-closing deliverables under the Post-Closing Letter Agreement. Specifically, Section 7.01(e) of the Credit Agreement requires the delivery of surveys acceptable to the title insurer, and Section 7.05 requires the maintenance of flood insurance on any property located in an SFHA. The Post-Closing Letter Agreement provides that any surveys, flood determinations, or related deliverables not completed by the closing date shall be delivered on or before August 5, 2022, and that failure to timely deliver such items shall constitute an Event of Default under Section 9.01(d) of the Credit Agreement, subject to a five (5) business day cure period.
III. Survey Methodology and Standards
A. ALTA/NSPS Survey Requirements
All surveys obtained for the forty-two Mortgaged Properties comply with the 2021 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys (the "2021 Standards"), jointly established by the American Land Title Association ("ALTA") and the National Society of Professional Surveyors ("NSPS"), effective February 23, 2021. The 2021 Standards prescribe the minimum requirements for surveys used in connection with the issuance of title insurance, including requirements regarding boundary determinations, evidence of possession and occupation, improvements, easements, rights-of-way, and other matters affecting the property.
In addition to the minimum standard requirements, Crescent Harbor Bank, N.A. (as Collateral Agent) and Continental Fidelity Title Company specified the following optional Table A items to be included in each survey:
The inclusion of these Table A items reflects the Collateral Agent's requirements for comprehensive survey coverage necessary to support the mortgagee title insurance policies and to identify any matters that could affect the priority, enforceability, or value of the mortgage liens.
All surveys have been addressed to the following parties:
(i) Verimark Hospitality Group Inc.;
(ii) Verimark Resort Properties LLC or Palmetto Beachfront Hotels LLC, as the applicable property-owning subsidiary;
(iii) Crescent Harbor Bank, N.A., in its capacity as Collateral Agent for the benefit of the Lenders;
(iv) Continental Fidelity Title Company, as title insurer; and
(v) Calderwood & Harkness LLP, as counsel to the Borrower and the Guarantors.
Each survey includes a surveyor's certification in the form approved by Continental Fidelity, certifying that the survey was prepared in accordance with the 2021 Standards and the specified Table A items, and that the survey correctly depicts the boundaries, improvements, and other features of the property as of the date of the survey.
B. Existing Surveys and Recertification Approach
For thirty-four (34) of the forty-two (42) Mortgaged Properties, existing ALTA surveys prepared in connection with the February 2020 Greystone financing (or, in certain instances, in connection with VHG's prior acquisition of the properties) were available. These existing surveys were originally prepared in compliance with the then-applicable 2016 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys (the "2016 Standards"). In consultation with Continental Fidelity and the Collateral Agent, the surveying firms that prepared the original surveys were engaged to perform recertifications of such surveys, updating the certification dates to June or July 2022 and confirming that: (a) the boundaries of the property have not changed; (b) no material changes to improvements have occurred since the original survey date; (c) no new encroachments, overlaps, gaps, or gores exist; and (d) the survey complies with the 2021 Standards to the extent applicable to the recertification. The recertification approach was accepted by Continental Fidelity as a cost-effective and efficient alternative to commissioning entirely new surveys for properties that had not undergone material changes.
For eight (8) properties, new full ALTA surveys were commissioned because significant improvements, additions, or renovations had been completed since the date of the prior surveys, rendering the existing surveys materially outdated. Specifically:
• Texas (4 properties): All four Texas properties (TX-01 through TX-04) underwent substantial renovation and expansion projects during 2021 and 2022, including the addition of new guest room wings, conference facilities, and parking structures. The scope of these improvements necessitated new full surveys to accurately depict the current state of the properties.
• Colorado (2 properties): The Denver and Vail properties (CO-01 and CO-02) were expanded with new spa and amenity buildings completed in late 2021 and early 2022, respectively.
• Georgia (1 property): The Atlanta property (GA-01) received a new conference center addition completed in the first quarter of 2022.
• Arizona (1 property): The Scottsdale property (AZ-02) was improved with a new pool complex and outdoor event space completed in May 2022.
All recertifications and new surveys were completed by July 12, 2022, within the timeframe necessary to support the closing of the Credit Agreement on July 21, 2022, and comfortably ahead of the August 5, 2022 post-closing deadline.
C. Surveyor Firms
A total of nine (9) licensed surveying firms were engaged to perform the recertifications and new surveys across the twelve states in which the Mortgaged Properties are located. Each firm holds a valid license in the applicable state and has been approved by Continental Fidelity Title Company for purposes of the issuance of survey-related title insurance endorsements. A complete state-by-state listing of the surveying firms, including the name of the responsible licensed surveyor, license number, and contact information, is set forth in Exhibit A attached hereto in the property-by-property survey schedule. For purposes of this summary memorandum, the individual firm identifications are incorporated by reference to Exhibit A.
IV. Survey Status — Property-by-Property Summary
A. Summary Table Structure
A detailed property-by-property schedule setting forth the survey status for each of the forty-two (42) Mortgaged Properties is attached hereto as Exhibit A. The schedule is organized in tabular format and includes the following columns for each property:
• Property Number / Identifier (e.g., FL-01 through FL-12; NY-01 through NY-06; etc.)
• Property Name / Address
• State / County
• Owning Entity (VRP or Palmetto)
• Survey Type (Recertification or New)
• Survey Date
• Surveyor Name / License Number
• Certification Addressees
• Survey Exceptions Noted (if any)
• Status (Complete / Pending)
The following subsections provide a state-by-state overview of the survey status and any notable findings. Exhibit A should be consulted for complete property-specific detail.
B. State-by-State Survey Status Overview
Florida (12 Properties — Palmetto Beachfront Hotels LLC)
All twelve (12) Florida Mortgaged Properties are coastal resort properties owned by Palmetto Beachfront Hotels LLC and are located in Miami-Dade County (3), Broward County (3), Palm Beach County (2), Monroe County (2), Hillsborough County (1), and Duval County (1). Survey recertifications were obtained for all twelve properties, as no material changes to improvements had occurred since the prior surveys were prepared in January and February 2020.
One notable survey finding was identified at Property FL-03 (Miami Beach, Miami-Dade County): the recertified survey depicts a minor 0.3-foot encroachment of a decorative masonry wall along the southern boundary of the property onto the adjacent parcel (Lot 14, Block 22, of the Miami Beach Oceanview Plat, as recorded in Plat Book 47, Page 112, of the Public Records of Miami-Dade County, Florida). This encroachment was previously identified in the original 2020 survey and is covered by an existing license agreement dated March 8, 2018, between the adjacent property owner (MB Oceanview Condominium Association, Inc.) and Palmetto, granting Palmetto a revocable license to maintain the decorative wall in its current location. Continental Fidelity Title Company has addressed this matter in the title insurance policy for FL-03 by issuing a survey endorsement (ALTA 28.2 — Encroachments — Boundaries and Easements) that affirmatively insures over the encroachment. We do not consider this encroachment to constitute a material title defect or to adversely affect the priority or enforceability of the mortgage lien on FL-03.
All twelve Florida surveys have been completed and delivered.
New York (6 Properties — Verimark Resort Properties LLC)
All six (6) New York Mortgaged Properties are owned by VRP and are located in New York County (Manhattan) (3), Kings County (Brooklyn) (1), Westchester County (1), and Suffolk County (Long Island) (1). Survey recertifications were obtained for all six properties.
No material encroachments, boundary issues, or other significant survey exceptions were identified at any of the New York properties. The surveys accurately depict the boundaries, improvements, and easements as set forth in the title commitments, and Continental Fidelity has confirmed the surveys are acceptable for issuance of the mortgagee title insurance policies.
All six New York surveys have been completed and delivered.
California (5 Properties — Verimark Resort Properties LLC)
All five (5) California Mortgaged Properties are owned by VRP and are located in San Diego County (2), Los Angeles County (1), San Francisco County (1), and Orange County (1). Survey recertifications were obtained for all five properties.
One property-specific finding was identified at Property CA-04 (San Diego, San Diego County): the recertified survey depicts an existing utility easement in favor of Northgate Industries traversing the underground parking structure area along the western portion of the property. This easement was created by instrument recorded on May 22, 1997, as Document No. 1997-0248167 of the Official Records of San Diego County, and was previously disclosed and noted in the title commitment for the property. The easement is an underground easement that does not interfere with the above-grade improvements or the operation of the hotel. Continental Fidelity has included the easement as a permitted exception in the title insurance policy and has confirmed that it does not adversely affect the insured mortgage lien. We do not consider this easement to constitute a material impediment to operations or a material adverse effect on the appraised value of the property.
All five California surveys have been completed and delivered.
Texas (4 Properties — Verimark Resort Properties LLC)
All four (4) Texas Mortgaged Properties are owned by VRP and are located in Harris County (Houston) (1), Galveston County (Galveston) (1), Bexar County (San Antonio) (1), and Travis County (Austin) (1). New full ALTA surveys were commissioned for all four Texas properties due to the completion of substantial renovation and expansion projects during 2021 and 2022, which rendered the prior surveys materially outdated. The new surveys were completed by July 10, 2022.
No material encroachments or boundary issues were identified at any of the Texas properties. However, one minor discrepancy was identified at Property TX-01 (Houston, Harris County): the new survey revealed a 0.1-foot gap between the survey description as plotted by the surveyor and the recorded legal description in the deed (recorded in Volume 2019-47812 of the Official Public Records of Real Property of Harris County, Texas). This gap appears to be attributable to a scrivener's error in the original deed description and does not affect the actual location of the boundary improvements or the occupation of the property. A corrective instrument (a Correction Special Warranty Deed) is being prepared by local Texas counsel and will be recorded post-closing to resolve the discrepancy. Continental Fidelity has been made aware of this matter and has agreed to insure the mortgage lien at TX-01 subject to the recording of the corrective instrument by August 5, 2022, the post-closing deadline. The corrective instrument is listed as a post-closing deliverable in Section IX below.
All four Texas surveys have been completed and delivered.
Georgia (3 Properties — Verimark Resort Properties LLC)
All three (3) Georgia Mortgaged Properties are owned by VRP and are located in Fulton County (Atlanta) (1), Chatham County (Savannah) (1), and Glynn County (St. Simons Island) (1). Two of the three properties (GA-02 and GA-03, the Savannah and St. Simons Island properties, respectively) were recertified based on the existing surveys. One new full ALTA survey was commissioned for Property GA-01 (Atlanta, Fulton County), due to the construction of a new conference center addition that was completed in the first quarter of 2022. The new survey for GA-01 was completed on July 8, 2022, and accurately depicts the new conference center building, associated site improvements, and all existing improvements on the property.
No material encroachments, boundary issues, or other significant survey exceptions were identified at any of the Georgia properties.
All three Georgia surveys have been completed and delivered.
Colorado (3 Properties — Verimark Resort Properties LLC)
All three (3) Colorado Mortgaged Properties are owned by VRP and are located in the City and County of Denver (1), Eagle County (Vail) (1), and Summit County (Breckenridge) (1). One property (CO-03, the Breckenridge property) was recertified based on the existing survey. Two new full ALTA surveys were commissioned for Properties CO-01 (Denver) and CO-02 (Vail), due to the construction of new spa and amenity buildings at each property completed in late 2021 and early 2022, respectively. The new surveys for both properties were completed by July 5, 2022.
One property-specific finding was noted at Property CO-02 (Vail, Eagle County): the new survey depicts a ski-lift easement in favor of Calderon Corporation (a subsidiary of Westmark Holdings) traversing the eastern portion of the property. This easement was granted by a Ski Lift Easement Agreement recorded on August 14, 2003, at Reception No. 803742, of the Eagle County Clerk and Recorder's records. The easement is a long-standing encumbrance that was identified in the original title review conducted in connection with VHG's acquisition of the property in 2016 and has been a known and disclosed matter throughout the chain of title. The easement was included as a permitted exception in both the Existing TLB mortgage and the title insurance policy issued in 2020. Continental Fidelity has confirmed that the easement will again be included as a permitted exception in the new mortgagee title insurance policy and that it does not adversely affect the insured mortgage lien. The ski-lift easement is integral to the property's operations as a ski resort hotel and does not diminish its value; rather, proximity to ski infrastructure is a significant contributor to the property's revenue generation and appraised value.
All three Colorado surveys have been completed and delivered.
Arizona (2 Properties — Verimark Resort Properties LLC)
Both Arizona Mortgaged Properties are owned by VRP and are located in Maricopa County (Scottsdale) (2). One property (AZ-01) was recertified based on the existing survey. One new full ALTA survey was commissioned for Property AZ-02, due to the construction of a new pool complex and outdoor event space completed in May 2022. The new survey for AZ-02 was completed on July 11, 2022, and accurately depicts the new improvements.
No material encroachments, boundary issues, or other significant survey exceptions were identified at either Arizona property.
Both Arizona surveys have been completed and delivered.
Illinois (2 Properties — Verimark Resort Properties LLC)
Both Illinois Mortgaged Properties are owned by VRP and are located in Cook County (Chicago) (2). Survey recertifications were obtained for both properties.
No material encroachments, boundary issues, or other significant survey exceptions were identified at either Illinois property.
Both Illinois surveys have been completed and delivered.
Washington (2 Properties — Verimark Resort Properties LLC)
Both Washington Mortgaged Properties are held by VRP and are located in King County (Seattle) (1) and Pierce County (Tacoma) (1). These properties were originally acquired by VHG through its 2019 acquisition of Cascadia Hospitality Corp. and are now held by VRP as the surviving property-owning entity. Survey recertifications were obtained for both properties.
No material encroachments, boundary issues, or other significant survey exceptions were identified at either Washington property.
Both Washington surveys have been completed and delivered.
Oregon (1 Property — Verimark Resort Properties LLC)
The single Oregon Mortgaged Property is owned by VRP and is located in Multnomah County (Portland). A survey recertification was obtained.
No material encroachments, boundary issues, or other significant survey exceptions were identified.
The Oregon survey has been completed and delivered.
Nevada (1 Property — Verimark Resort Properties LLC)
The single Nevada Mortgaged Property is owned by VRP and is located in Clark County (Las Vegas). A survey recertification was obtained.
No material encroachments, boundary issues, or other significant survey exceptions were identified.
The Nevada survey has been completed and delivered.
Virginia (1 Property — Verimark Resort Properties LLC)
The single Virginia Mortgaged Property is owned by VRP and is located in the City of Arlington (Arlington County). A survey recertification was obtained.
No material encroachments, boundary issues, or other significant survey exceptions were identified.
The Virginia survey has been completed and delivered.
C. Overall Survey Completion Status
As of July 12, 2022, all forty-two (42) of forty-two (42) surveys have been completed and delivered. Specifically, thirty-four (34) recertifications and eight (8) new full ALTA surveys have been finalized, and all surveys meet the 2021 ALTA/NSPS Minimum Standard Detail Requirements, including the specified Table A optional items. All surveys have been properly addressed to the five required parties (VHG, the applicable property-owning subsidiary, Crescent Harbor as Collateral Agent, Continental Fidelity, and this firm).
The minor survey exceptions identified across the forty-two property portfolio are summarized as follows:
(i) FL-03 (Miami Beach, FL): Minor 0.3-foot encroachment of a decorative wall onto an adjacent parcel, covered by an existing license agreement and addressed by a survey endorsement from Continental Fidelity.
(ii) CA-04 (San Diego, CA): Existing underground utility easement traversing the parking structure area, previously disclosed and noted as a permitted exception in the title commitment.
(iii) TX-01 (Houston, TX): Minor 0.1-foot gap between the survey description and the recorded legal description, attributable to a scrivener's error, to be resolved by a corrective instrument to be recorded post-closing.
(iv) CO-02 (Vail, CO): Long-standing ski-lift easement, previously known and disclosed, included as a permitted exception in the title insurance policy.
None of these exceptions constitute material title defects. Each has been addressed through existing agreements, title insurance endorsements, or corrective instruments, and none adversely affects the priority, enforceability, or value of the mortgage liens securing the Facility. Continental Fidelity has confirmed that all surveys are acceptable for purposes of issuing the mortgagee title insurance policies, subject only to the post-closing deliverables described in Section IX below.
V. Flood Zone Determinations — Methodology
A. Flood Determination Standard
Life-of-Loan Standard Flood Hazard Determination Forms ("SFHDFs"), as prescribed by FEMA, have been obtained for all forty-two (42) Mortgaged Properties. The flood determinations were performed by CoreFlood Services LLC, a qualified third-party flood certification vendor, in accordance with applicable federal law, including:
• The National Flood Insurance Act of 1968, as amended (42 U.S.C. §§ 4001–4130);
• The Flood Disaster Protection Act of 1973, as amended (42 U.S.C. §§ 4002 et seq.);
• The National Flood Insurance Reform Act of 1994 (Title V of the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. 103-325);
• The Biggert-Waters Flood Insurance Reform Act of 2012 (Pub. L. 112-141, Division F, Title II); and
• The regulations promulgated thereunder by FEMA (44 C.F.R. Parts 59–77) and the federal financial regulatory agencies (12 C.F.R. Part 22 (OCC); 12 C.F.R. Part 208 (Federal Reserve); 12 C.F.R. Part 339 (FDIC); 12 C.F.R. Part 614 (Farm Credit Administration); 12 C.F.R. Part 760 (NCUA)).
The flood determinations reference current effective FEMA Flood Insurance Rate Maps ("FIRMs") as of July 2022. CoreFlood Services LLC has provided life-of-loan monitoring for all forty-two properties, which includes automatic notification to the Collateral Agent and the Borrower in the event of any future FEMA map revisions affecting the flood zone designation of any Mortgaged Property during the term of the Facility.
B. Classification Categories
The FEMA flood zone classifications relevant to the forty-two Mortgaged Properties are as follows:
Zone X (unshaded): Areas determined to be outside the 500-year floodplain. These areas have a minimal flood hazard and are not considered Special Flood Hazard Areas. There is no mandatory flood insurance purchase requirement under federal law for structures located in Zone X (unshaded).
Zone X (shaded): Areas within the 500-year floodplain but outside the 100-year floodplain. These areas have a moderate flood hazard but are not considered Special Flood Hazard Areas. There is no mandatory flood insurance purchase requirement under federal law for structures located in Zone X (shaded), although flood insurance may be available on a voluntary basis.
Zone AE: Special Flood Hazard Area. Areas subject to inundation by the 1% annual chance flood event (i.e., the "100-year flood"), for which base flood elevations ("BFEs") have been determined through detailed hydraulic analysis. Federal law requires that buildings or mobile homes securing federally regulated or insured loans located in Zone AE in participating NFIP communities be covered by flood insurance for the term of the loan.
Zone VE: Special Flood Hazard Area — Coastal High Hazard Area. Areas subject to inundation by the 1% annual chance flood event with additional hazards associated with storm-induced velocity wave action. BFEs have been determined. The same mandatory flood insurance purchase requirement applies, and more stringent building standards apply to construction in Zone VE areas. Zone VE areas are found along coastlines where wave heights during the base flood are expected to reach three (3) feet or more.
Of the forty-two Mortgaged Properties, thirty-eight (38) are located in Flood Zone X, three (3) are located in Zone AE, and one (1) is located in Zone VE.
VI. Flood Zone Determination Results — Property-by-Property Summary
A. Summary Table Structure
A detailed property-by-property flood zone determination schedule is attached hereto as Exhibit B. The schedule is organized in tabular format and includes the following columns for each of the forty-two (42) Mortgaged Properties:
• Property Number / Identifier
• Property Name / Address
• State / County
• FEMA Community Number
• FEMA Map Panel Number
• Map Effective Date
• Flood Zone Designation
• In SFHA (Yes / No)
• NFIP Community Participation Status (Participating / Non-Participating)
• Flood Insurance Required under Federal Law (Yes / No)
• Flood Insurance Policy Number (if applicable)
• Coverage Amount (if applicable)
• Policy Expiration Date (if applicable)
• Loss Payee / Mortgagee
The following subsections provide a summary of the aggregate results and state-by-state detail for properties with SFHA designations. Exhibit B should be consulted for complete property-specific information.
B. Aggregate Results Summary
The aggregate flood zone determination results for the forty-two Mortgaged Properties are as follows:
Thirty-eight (38) properties — Flood Zone X (minimal flood hazard; not in SFHA). These properties are located outside the 100-year floodplain, and no mandatory flood insurance purchase requirement applies under federal law or the Credit Agreement. The thirty-eight Zone X properties span all twelve states in which the Mortgaged Properties are located and include nine of the twelve Florida properties, all six New York properties, all five California properties, three of the four Texas properties, all three Georgia properties, all three Colorado properties, both Arizona properties, both Illinois properties, both Washington properties, the Oregon property, the Nevada property, and the Virginia property.
Four (4) properties — located in Special Flood Hazard Areas (SFHAs). These four properties are subject to the mandatory flood insurance purchase requirement under federal law and the Credit Agreement. The SFHA properties are:
• Property FL-03 — Palmetto Beachfront Hotels LLC — Miami Beach, Miami-Dade County, Florida — Zone VE (coastal high hazard area with velocity wave action). The community in which FL-03 is located (City of Miami Beach, NFIP Community No. 120650) participates in the NFIP. Flood insurance is required.
• Property FL-07 — Palmetto Beachfront Hotels LLC — Fort Lauderdale, Broward County, Florida — Zone AE. The community in which FL-07 is located (City of Fort Lauderdale, NFIP Community No. 120051) participates in the NFIP. Flood insurance is required.
• Property FL-11 — Palmetto Beachfront Hotels LLC — Key West, Monroe County, Florida — Zone AE. The community in which FL-11 is located (City of Key West, NFIP Community No. 120422) participates in the NFIP. Flood insurance is required.
• Property TX-02 — Verimark Resort Properties LLC — Galveston, Galveston County, Texas — Zone AE. The community in which TX-02 is located (City of Galveston, NFIP Community No. 480253) participates in the NFIP. Flood insurance is required.
C. State-by-State Flood Zone Detail
Florida SFHA Properties (3 of 12 Properties)
Three of the twelve Florida Mortgaged Properties are located within Special Flood Hazard Areas. The specific flood zone details for each are as follows:
Property FL-03 — Miami Beach, Miami-Dade County, Florida — Zone VE
Property FL-03 is located in FEMA Flood Zone VE, a coastal high hazard area subject to inundation by the 1% annual chance flood with additional hazards from storm-induced velocity wave action. The applicable FEMA Flood Insurance Rate Map is FIRM Panel 12086C0312J, with an effective date of November 16, 2021. The base flood elevation (BFE) at this location has been determined to be 11 feet NAVD88. The hotel building at FL-03 was constructed at or above the BFE of 11 feet, consistent with the local building code requirements and the NFIP floodplain management regulations applicable to Zone VE areas. An existing NFIP flood insurance policy is in force for the property, providing coverage in an amount that meets or exceeds the lesser of (i) the outstanding principal balance of the loan allocable to the property, (ii) the maximum amount of NFIP coverage available for the type of building (currently $500,000 for non-residential buildings under the NFIP, though the property may be eligible for and may carry excess flood coverage through private insurers), and (iii) the replacement cost of the insured building. The Credit Agreement requires coverage levels satisfactory to the Administrative Agent, and VHG maintains supplemental private flood insurance above the NFIP limits as part of its comprehensive property insurance program.
Property FL-07 — Fort Lauderdale, Broward County, Florida — Zone AE
Property FL-07 is located in FEMA Flood Zone AE, a Special Flood Hazard Area subject to inundation by the 1% annual chance flood, with base flood elevations determined. The applicable FIRM Panel is 12011C0415H, with an effective date of August 18, 2020. The BFE at this location has been determined to be 8 feet NAVD88. An existing NFIP flood insurance policy is in force for the property with adequate coverage levels consistent with the requirements of federal law and the Credit Agreement.
Property FL-11 — Key West, Monroe County, Florida — Zone AE
Property FL-11 is located in FEMA Flood Zone AE. The applicable FIRM Panel is 12087C0624G, with an effective date of November 16, 2021. The BFE at this location has been determined to be 9 feet NAVD88. An existing NFIP flood insurance policy is in force for the property with adequate coverage levels consistent with the requirements of federal law and the Credit Agreement.
All three Florida SFHA properties currently carry NFIP flood insurance policies. As a post-closing deliverable, the loss payee/mortgagee endorsements on these policies are being updated to name Crescent Harbor Bank, N.A. (as Collateral Agent) as the loss payee/mortgagee, replacing the prior designation of Greystone Federal Credit Corp. This update is to be completed upon recording of the new Florida mortgages and in any event on or before August 5, 2022, the post-closing deadline.
Texas SFHA Property (1 of 4 Properties)
Property TX-02 — Galveston, Galveston County, Texas — Zone AE
Property TX-02 is located in FEMA Flood Zone AE, a Special Flood Hazard Area subject to inundation by the 1% annual chance flood, with base flood elevations determined. The applicable FIRM Panel is 48167C0395G, with an effective date of September 30, 2019. The BFE at this location has been determined to be 12 feet NAVD88. An existing NFIP flood insurance policy is in force for the property. The flood insurance policy is being updated to reflect Crescent Harbor Bank, N.A. (as Collateral Agent) as the loss payee/mortgagee, replacing Greystone Federal Credit Corp. The coverage level carried on the TX-02 policy is adequate under both the federal statutory minimum requirements and the Credit Agreement's insurance covenants. VHG also maintains supplemental private excess flood coverage for this property as part of its overall risk management program.
All Other States (38 Properties)
All Mortgaged Properties located in New York (6), California (5), Texas (remaining 3 — TX-01, TX-03, TX-04), Georgia (3), Colorado (3), Arizona (2), Illinois (2), Washington (2), Oregon (1), Nevada (1), and Virginia (1), as well as the remaining nine Florida properties (FL-01, FL-02, FL-04, FL-05, FL-06, FL-08, FL-09, FL-10, FL-12), are located in FEMA Flood Zone X and are not situated within Special Flood Hazard Areas. No mandatory flood insurance purchase requirement applies to these thirty-eight properties under federal law, and no flood insurance is required for these properties under the Credit Agreement's insurance covenants. As noted in Section VII.D below, VHG voluntarily maintains flood insurance on certain of these Zone X properties as a matter of corporate risk management policy.
VII. Flood Insurance Compliance Analysis
A. Federal Mandatory Purchase Requirement
Under the Flood Disaster Protection Act of 1973 (as amended), the National Flood Insurance Reform Act of 1994, and the Biggert-Waters Flood Insurance Reform Act of 2012, any building or manufactured (mobile) home (including any personal property securing the loan) located or to be located in a Special Flood Hazard Area in a community that participates in the National Flood Insurance Program, where such building or personal property secures a loan made, increased, extended, or renewed by any federally regulated lending institution, must be covered by flood insurance for the term of the loan. This is commonly referred to as the "mandatory purchase requirement."
Crescent Harbor Bank, N.A. is a nationally chartered bank, chartered and regulated by the Office of the Comptroller of the Currency ("OCC"), and is therefore a "federally regulated lending institution" for purposes of the mandatory flood insurance purchase requirement. The Lenders under the Credit Agreement are also subject to the mandatory purchase requirement to the extent they are federally regulated institutions. Accordingly, the mandatory purchase requirement applies to any Mortgaged Property that is both (i) located in a Special Flood Hazard Area and (ii) situated in a community participating in the NFIP.
All four (4) SFHA properties identified in Section VI above (FL-03, FL-07, FL-11, and TX-02) are located in communities that participate in the NFIP. Accordingly, the mandatory flood insurance purchase requirement applies to all four SFHA properties. The remaining thirty-eight (38) properties are located in Flood Zone X and are not subject to the mandatory purchase requirement.
B. Required Flood Insurance Coverage Levels
Under applicable federal regulations (including 12 C.F.R. § 22.3 (OCC) and related interagency regulations), the minimum amount of flood insurance required for each SFHA property is the lesser of:
(i) the outstanding principal balance of the loan or loans secured by the building or personal property;
(ii) the maximum amount of coverage available under the NFIP for the particular type of building (currently $500,000 for other residential buildings and non-residential buildings under the NFIP); or
(iii) the full insurable value of the building (i.e., the replacement cost value).
Because the aggregate outstanding principal balance of the Term Loan B ($700,000,000) substantially exceeds the maximum NFIP coverage limits, VHG maintains a layered flood insurance program consisting of (i) NFIP policies providing coverage up to the NFIP maximum limits and (ii) supplemental private excess flood insurance policies providing additional coverage above the NFIP limits, in each case in amounts satisfactory to the Administrative Agent and consistent with the insurance covenants set forth in Section 7.05 of the Credit Agreement. The Credit Agreement requires that the Borrower and the Guarantors maintain flood insurance on SFHA properties in amounts satisfactory to the Administrative Agent, and the Administrative Agent has confirmed that the current coverage levels are adequate.
C. Current Flood Insurance Status for SFHA Properties
The following table summarizes the current status of flood insurance for the four SFHA properties:
As reflected in the table above, all four SFHA properties currently maintain active NFIP flood insurance policies with coverage amounts that satisfy both the federal minimum requirements and the Credit Agreement's insurance covenants. The remaining post-closing action is the updating of the loss payee/mortgagee endorsements on each policy from Greystone Federal Credit Corp. (the prior collateral agent under the Existing TLB) to Crescent Harbor Bank, N.A. (as the new Collateral Agent under the Credit Agreement). This update will be processed by VHG's insurance broker, Sundial Benefits Consulting, in coordination with the NFIP Write Your Own ("WYO") carrier, following the recording of the new mortgages. All loss payee endorsement updates are required to be completed on or before August 5, 2022, per the Post-Closing Letter Agreement.
D. Voluntary Flood Insurance
For completeness, we note that VHG maintains voluntary flood insurance coverage on certain Mortgaged Properties located in Flood Zone X (outside the SFHA) in coastal or low-lying areas, as part of VHG's corporate risk management program. This voluntary coverage is maintained at VHG's discretion and is not a requirement of the Credit Agreement or applicable federal law. The voluntary coverage provides an additional layer of protection against flood-related losses at properties that, while not in the 100-year floodplain, may be subject to some degree of flood risk due to their coastal proximity or geographic characteristics. The specific properties carrying voluntary flood coverage and the coverage amounts are maintained in VHG's insurance records and are available upon request.
VIII. Borrower's Notice Obligations
For each of the four (4) SFHA properties (FL-03, FL-07, FL-11, and TX-02), VHG has been provided written notice of the SFHA designation and the mandatory flood insurance purchase requirement, as required by applicable federal regulations. Specifically, under 42 U.S.C. § 4104a and the implementing regulations promulgated by the OCC (12 C.F.R. § 22.9), a regulated lending institution that makes, increases, extends, or renews a loan secured by a building or personal property located or to be located in an SFHA in an NFIP-participating community must provide written notice to the borrower of the following:
(a) That the building or personal property securing the loan is or will be located in an SFHA;
(b) A description of the flood insurance purchase requirements;
(c) A statement that flood insurance coverage under the NFIP may be purchased through the NFIP directly or through a licensed insurance agent;