Catherine,
I hope you had a good weekend. We have completed our initial review of the loan document package circulated by your office on December 19, 2022, in connection with the proposed $160,000,000 first mortgage loan (the "Loan") from Pinnacle Atlantic Capital, LLC ("PAC") to Coral Palms Resort Holdings LLC ("Borrower"), to be secured by the Coral Palms Grand Resort & Spa located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037. Attached please find Borrower's tracked-changes redlines of each of the seven principal loan documents, as described below.
**Attachments:**
1. **Loan Agreement** — Borrower's Markup (redline of WBD initial draft). Covers the $160,000,000 first mortgage loan at a 5.35% fixed rate; interest-only for years 1–2, with a 30-year amortization schedule commencing in year 3 through the end of the 5-year term; two 1-year extension options (subject to no default, DSCR ≥ 1.25x, and a 0.25% extension fee per extension); maximum LTV of 68.0%; minimum debt yield of 9.5%.
2. **Promissory Note** — Borrower's Markup. Principal amount of $160,000,000; interest rate, payment dates, default rate, and maturity provisions.
3. **Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing** — Borrower's Markup. Encumbering the Coral Palms Grand Resort & Spa; legal description referencing Section 27, Township 60 South, Range 39 East, Monroe County, Florida; Folio No. 00460780-000100; Florida governing law.
4. **Guaranty Agreement** — Borrower's Markup. Limited recourse / "bad boy" carve-out guaranty to be executed by Verimark Hospitality Group Inc. ("VHG") in favor of PAC; scope of carve-out events and springing full recourse triggers.
5. **Environmental Indemnity Agreement** — Borrower's Markup. To be executed by Borrower and VHG in favor of PAC; indemnification scope and survival provisions. We note that the Phase I Environmental Site Assessment is currently being prepared by Oakridge Environmental Consulting Group, Inc. (Dr. James Whitmore) and is expected to be delivered shortly.
6. **Cash Management Agreement** — Borrower's Markup. Lockbox, cash sweep, and waterfall provisions; operating account controls; trigger events for cash sweep.
7. **Reserve Agreement** — Borrower's Markup. Upfront reserves of $4,800,000 (covering tax, insurance, FF&E, and capital reserves); monthly reserve contribution mechanics; conditions for reserve release.
**Summary of Key Open Issues**
To frame our forthcoming discussion, I wanted to briefly flag the most significant areas of Borrower's comments across the document suite:
- **Transfer Restrictions.** Borrower has requested broader permitted transfer carve-outs, including transfers among VHG affiliates and permitted equity pledges, without the requirement of lender consent.
- **Cash Management Triggers.** Borrower's position is that the cash sweep should be triggered only upon the occurrence of a material adverse event or an event of default, rather than solely upon a DSCR decline below the specified threshold.
- **Guaranty Carve-Outs.** Borrower has narrowed the scope of springing full recourse events in several respects and has proposed that certain environmental carve-outs be limited to the acts or omissions of Borrower (as opposed to strict liability formulations).
- **Default and Cure Periods.** Borrower has requested extended notice and cure periods for non-monetary defaults throughout the document suite.
- **Casualty and Condemnation.** Borrower has proposed threshold amounts below which insurance and condemnation proceeds would be applied to restoration of the property rather than to prepayment of the Loan.
- **Prepayment / Defeasance.** Borrower has included comments regarding prepayment flexibility and the proposed exit fee structure (0.25% of outstanding principal).
- **Extension Conditions.** Borrower has commented on the DSCR threshold (≥ 1.25x) and extension fee terms applicable to the two 1-year extension options.
- **Reserve Mechanics.** Borrower has requested that reserves be eligible for release or reduction upon satisfaction of specified property performance thresholds.
We have prepared a detailed internal issues memorandum addressing each of these items and are prepared to walk through them at the parties' convenience.
**Scheduling a Call**
We would like to propose scheduling a call during the week of January 16 with the respective deal teams to discuss the key open points. It may be helpful to include client representatives — Derek Huang from VHG on our side, and Jennifer Kwon or Martin Drubeck from PAC on yours — to the extent the principals are available. Early resolution of the major commercial issues would be beneficial given the overall transaction timeline, particularly as the appraiser's physical inspection of the property was scheduled for January 6 and we anticipate receipt of the appraisal report in the coming weeks. Please let us know your team's availability and we will circulate a calendar invitation.
**Existing Loan**
Separately, we have completed our review of the existing Tidewater National Bank loan documents. We will be transmitting the payoff request letter to Tidewater under separate cover. The existing mortgage (recorded in O.R. Book 2892, Page 0445, Monroe County, Florida) and UCC-1 financing statement (File No. 202219087643) will need to be satisfied and terminated at closing.
**Title and Survey**
We are in the process of reviewing the title commitment issued by Meridian Title & Escrow, Inc. (Lisa Portman) and the ALTA/NSPS survey prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS). We will transmit any title objection letter separately once our review is complete.
**Insurance**
Finally, we have begun reviewing PAC's insurance requirements against VHG's existing coverage from Southland Mutual Insurance Company and Bayfront Specialty Insurance Corp. and are coordinating with Castlegate Risk Advisors LLC (Monica Iglesias) regarding any additional endorsements or policy modifications that may be required.
Thank you, Catherine. We look forward to receiving your and Philip's response and to scheduling the call at a mutually convenient time. Please do not hesitate to reach out if you have any questions in the interim.
Best regards,
Grace Nakamura Associate, Real Estate Calderwood & Harkness LLP 100 Southeast Second Street, Suite 3800 Miami, FL 33131 T: (305) 555-4217 E: gnakamura@calderwoodharkness.com
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