CALDERWOOD & HARKNESS LLP
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
I. PURPOSE AND SCOPE OF MEMORANDUM
This memorandum summarizes Calderwood & Harkness LLP's review of the ALTA/NSPS Land Title Survey (the "Survey") of the Coral Palms Grand Resort & Spa (the "Property"), prepared by Landis & Shaw Surveying, Inc. ("Landis & Shaw") and certified by Robert Tran, PLS, a Professional Land Surveyor licensed in the State of Florida. The Survey was received by our office on December 28, 2022.
The purpose of this memorandum is threefold. First, we analyze the Survey for compliance with lender requirements under the proposed $160,000,000.00 first mortgage loan (the "Loan") from Pinnacle Atlantic Capital, LLC ("PAC" or the "Lender") to Coral Palms Resort Holdings LLC, a Florida limited liability company (the "Borrower"), as set forth in the commitment letter dated December 9, 2022 (the "Commitment Letter"), and in the draft loan documents circulated by Whitford Baines & Driscoll LLP ("WBD"), counsel to PAC, on December 19, 2022. Second, we identify potential issues affecting title insurance and lien priority of the proposed mortgage in favor of PAC. Third, we confirm consistency between the Survey and the title commitment (Commitment No. MTI-2022-FL-38741) issued by Meridian Title & Escrow, Inc. ("Meridian Title"), Lisa Portman, Title Officer (the "Title Commitment"), a copy of which was delivered to our office on December 14, 2022 and which is the subject of our separate Title Commitment Review Memorandum of even date herewith.
The Survey was commissioned by the Borrower, which is a wholly owned indirect subsidiary of Verimark Hospitality Group Inc. ("VHG"), the client in this matter. The Survey certification runs to, among other parties, PAC and its counsel, WBD, to permit their reliance on the Survey in connection with the Loan. Meridian Title is also a named certificate party to facilitate issuance of the lender's title insurance policy.
This memorandum should be read in conjunction with our separate Title Commitment Review Memorandum and the Title Objection Letter being prepared for transmission to Meridian Title and WBD. All capitalized terms not otherwise defined herein have the meanings ascribed to them in the Commitment Letter or the Title Commitment, as applicable.
II. SURVEY IDENTIFICATION AND CERTIFICATION
A. Survey Details
The Survey was prepared by Landis & Shaw Surveying, Inc., with offices located at 7600 Red Road, Suite 210, South Miami, Florida 33143. Robert Tran, PLS, a Professional Land Surveyor duly licensed in the State of Florida, performed the certification of the Survey. Mr. Tran's Florida license number is LS 7284, and his license is current and in good standing as verified through the Florida Department of Agriculture and Consumer Services, Board of Professional Surveyors and Mappers, as of the date of this memorandum.
The Survey is prepared as an ALTA/NSPS Land Title Survey in accordance with the 2021 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys, as adopted and effective February 23, 2021, jointly established by the American Land Title Association ("ALTA") and the National Society of Professional Surveyors ("NSPS"), a member organization of the American Congress on Surveying and Mapping. The Survey plat bears a field work date of December 15, 2022, with a certification date of December 22, 2022.
The following Table A Optional Items were selected for inclusion in the Survey, consistent with standard practice for commercial real estate and hospitality transactions of this nature and consistent with PAC's requirements under the Commitment Letter:
Item 1: Monuments placed (or a note if existing monuments were found) at all major corners of the boundary of the property surveyed, unless prevented by a practical impossibility (e.g., water, wetlands, pavement).
Item 2: Address(es) of the surveyed property if disclosed in documents provided to the surveyor, or observed while conducting the fieldwork.
Item 3: Flood zone designation, with source and effective date, per FEMA Flood Insurance Rate Map.
Item 4: Gross land area (in square feet and acreage).
Item 5: Vertical relief with an existing or established benchmark, including source of benchmark and datum used.
Item 6(a): Zoning classification (current and as reported by the municipality or county) with setback and height restriction requirements.
Item 6(b): If item 6(a) is selected, a determination of the existing use of the property and whether the existing use represents a legal, conforming use under applicable zoning ordinances.
Item 7(a): Exterior dimensions of all buildings at ground level.
Item 7(b)(1): Square footage of exterior footprint of all buildings at ground level.
Item 7(c): Height of all buildings above grade at a defined location.
Item 8: Substantial features observed in the process of conducting the fieldwork (not shown on the survey plat as improvements or features), including parking lots, parking structures, fences, walls, signs, and similar features.
Item 9: Number and type of parking spaces, including handicapped-accessible spaces, on surface lots and in parking structures on the property.
Item 10: Determination of the relationship of the surveyed property to a delineated special flood hazard area, as shown on the applicable FEMA Flood Insurance Rate Map.
Item 11(a): Location of utilities (electric, gas, telephone, cable, water, sewer, storm drain) serving the surveyed property as observed during fieldwork or as identified in utility plans or other documents provided to the surveyor.
Item 13: Names of adjoining owners as disclosed by current tax records or as provided by the client.
Item 16: Evidence of underground springs, sinks, or other below-ground features observed in the process of conducting the fieldwork.
Item 17: Location of wetland areas as delineated by a qualified specialist, based on field data provided to the surveyor.
Item 18: Location of the property in relation to the Coastal Construction Control Line (CCCL) as established by the Florida Department of Environmental Protection.
Item 19: Location of plottable offsite easements or servitudes burdening the property disclosed in documents provided to the surveyor.
We note that Table A Items 6(a) and 6(b) were included, which is critical for the hospitality use of the Property and will be addressed in detail in Section XII below. Item 18, pertaining to the Florida Coastal Construction Control Line, is particularly relevant given the waterfront nature of the Property and is discussed further in Section XIII.
B. Certification Language
The Survey bears a certification running to the following parties:
(i) Coral Palms Resort Holdings LLC, as borrower and owner of the Property;
(ii) Verimark Hospitality Group Inc., as parent company and guarantor under the proposed Loan;
(iii) Pinnacle Atlantic Capital, LLC, as proposed lender;
(iv) Calderwood & Harkness LLP, as counsel to the Borrower;
(v) Whitford Baines & Driscoll LLP, as counsel to the Lender; and
(vi) Meridian Title & Escrow, Inc., as title insurer.
We have reviewed the certification language against PAC's survey requirements as set forth in Schedule 4 to the Commitment Letter. The certification language is generally acceptable, but we note the following items that should be confirmed with WBD:
(a) PAC's standard form certification language, as attached to the Commitment Letter, includes a reference to "successors and assigns" of the Lender. The Landis & Shaw certification as currently drafted includes the phrase "and their respective successors and/or assigns," which we believe satisfies this requirement. However, WBD may require confirmation that this language is sufficient for their purposes, particularly in light of PAC's anticipated assignment of the Loan to a CMBS trust or CLO vehicle.
(b) We recommend confirming with WBD whether any additional parties should be added to the certification, including any mezzanine lender, if applicable, or any rating agency requiring certification.
III. LEGAL DESCRIPTION AND PROPERTY IDENTIFICATION
A. Legal Description
The Survey depicts the Property as legally described in a metes and bounds description commencing at a point of beginning in Section 27, Township 60 South, Range 39 East, Monroe County, Florida. The legal description on the Survey face references the source of title as that certain Warranty Deed recorded in Official Records Book 2847, Page 1122, of the Public Records of Monroe County, Florida (the "Deed"), by which the Property was conveyed to the Borrower.
We have performed a word-for-word comparison of the metes and bounds legal description as set forth on the Survey against:
(i) the legal description contained in the Deed (O.R. Book 2847, Page 1122, Monroe County, Florida);
(ii) the legal description set forth in Schedule A of the Title Commitment issued by Meridian Title (Commitment No. MTI-2022-FL-38741); and
(iii) the legal description contained in the existing mortgage in favor of Tidewater National Bank, recorded in Official Records Book 2892, Page 0445, of the Public Records of Monroe County, Florida (the "Existing Mortgage"), which is to be satisfied and discharged at the closing of the PAC refinancing.
Our comparison reveals that the legal description on the Survey is consistent in all material respects with the legal description in the Deed and in Schedule A of the Title Commitment. We note one minor formatting variance: the Deed legal description references a bearing of "North 27 degrees 14 minutes 33 seconds East" at the fourth course, whereas the Survey recites this bearing as "N27°14'33"E." This is a formatting difference only, with no substantive impact, and is standard surveying convention.
We further confirm that the legal description on the Survey is consistent with the legal description in the Existing Mortgage (O.R. Book 2892, Page 0445). This consistency is important to ensure that the proposed mortgage in favor of PAC will encumber the same real property as the Existing Mortgage and that the satisfaction and discharge of the Existing Mortgage at closing will clear the title to the entirety of the Property.
We recommend that the legal description to be used in the PAC mortgage instrument and in the final title policy be the legal description as shown on the Survey, as it reflects the most recent field measurements and is certified by a licensed professional land surveyor.
B. Tax Folio and Address
The Property is identified by Monroe County Property Appraiser Folio Number 00460780-000100. The Survey references this folio number in the caption block. The street address of the Property is shown on the Survey as 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037, which is consistent with the address referenced in the Commitment Letter, the Title Commitment, and the Borrower's organizational documents.
We have independently confirmed the folio number through the Monroe County Property Appraiser's online records system. The Property Appraiser's records identify the same parcel with a situs address of 99000 Overseas Hwy, Key Largo, FL 33037, the assessed owner as Coral Palms Resort Holdings LLC, and a current assessed value that is consistent with the representations made by VHG in connection with the Loan application.
C. Site Area
The total site area of the Property as depicted on the Survey is approximately 22.4 acres (975,744 square feet), which includes both upland and waterfront portions of the parcel. The Survey notes that the waterfront boundary along the Atlantic Ocean (Florida Bay side) follows the mean high water line as determined by Landis & Shaw's field measurements.
The 22.4-acre figure is consistent with the property description in the Commitment Letter, which references "an approximately 22-acre waterfront resort property." VHG's representations in its loan application to PAC state a site area of "approximately 22.4 acres," which matches the Survey exactly. The Deed does not state a specific acreage, as it relies upon the metes and bounds description. The Title Commitment likewise does not reference a specific acreage figure.
We note that waterfront parcels with mean high water line boundaries are inherently subject to fluctuation due to accretion and erosion. The Survey reflects the mean high water line as of the date of field work (December 15, 2022). Any material changes to the mean high water line between the date of the Survey and the closing date could affect the precise acreage. Given the relatively stable nature of the Key Largo shoreline in this area and the presence of existing bulkhead and seawall improvements along portions of the waterfront, we do not anticipate material fluctuation, but we flag this as a matter for ongoing awareness.
IV. IMPROVEMENTS SHOWN ON SURVEY
A. Overview of Improvements
The Survey depicts the following improvements on the Property, which are consistent with the Coral Palms Grand Resort & Spa as described in VHG's loan application materials, the appraisal commissioned by PAC, and our own due diligence review:
• Main Resort Hotel Building: A multi-story resort hotel containing 342 guest rooms and suites, with a gross building area of approximately 412,000 square feet. The hotel building is depicted as an irregular footprint reflecting the curvilinear design of the resort, with multiple wings radiating from a central lobby and reception area.
• Conference, Meeting, and Event Space: Approximately 28,500 square feet of dedicated conference, meeting, and event facilities, depicted as contiguous with the main hotel building on the ground and second floors.
• Full-Service Spa: Approximately 18,000 square feet of spa facilities, shown as a separate wing attached to the main hotel building on the north side of the property, adjacent to the pool areas.
• Food and Beverage Outlets: Three (3) food and beverage outlets are depicted on the Survey, including one main restaurant adjacent to the lobby, one casual waterfront dining venue near the marina, and one poolside bar and grill.
• Marina: A 42-slip marina located along the waterfront (east side) of the Property, with floating docks, a fuel station, and a harbormaster building depicted on the Survey. The marina extends into submerged lands beyond the mean high water line.
• Parking Structure: A multi-level parking structure with an approximate capacity of 1,200 spaces, located on the western portion of the Property, adjacent to Overseas Highway. The parking structure is depicted as a rectangular footprint of approximately 142,000 square feet at ground level.
• Pool Areas: Two swimming pool complexes (main resort pool and an adults-only pool), together with associated deck areas, cabanas, and landscaping.
• Ancillary Improvements: Tennis and pickleball courts, fitness center (within the spa wing), maintenance and back-of-house buildings, water features, landscaped gardens, pedestrian paths, and perimeter fencing and walls.
The Property was originally constructed in 2006. VHG completed a comprehensive renovation of the Property in August 2021 at a total cost of approximately $47,000,000, which included renovation of all guest rooms and suites, upgrades to the conference facilities, expansion of the spa, renovation of the food and beverage outlets, improvements to the marina, and substantial landscaping and hardscaping upgrades. The Survey depicts the current, post-renovation configuration of all improvements.
B. Building Footprints and Setbacks
We have reviewed the building footprints as depicted on the Survey relative to the property boundary lines and have analyzed compliance with applicable Monroe County setback requirements under the Monroe County Land Development Code.
The Property is located within Monroe County's unincorporated area and is subject to the Monroe County Land Development Code (the "LDC"), as amended. Based on the zoning classification shown on the Survey face (discussed in Section XII below) and our review of the applicable provisions of the LDC, the following minimum setback requirements apply to the Property:
Based on our review, all principal improvements depicted on the Survey appear to be within the required setback areas established by the LDC. However, we note the following observations:
(i) The southern side setback for the maintenance building is 11.2 feet, which is only 1.2 feet in excess of the 10-foot minimum. While this is technically compliant, the margin is narrow. We recommend confirming with Landis & Shaw that this measurement is based on the closest point of the building footprint (including any roof overhang, if applicable under the LDC).
(ii) A concrete-block trash enclosure on the south side of the Property appears to be located approximately 6.8 feet from the southern property boundary line, which would place it within the required 10-foot side setback. Under the LDC, accessory structures of this nature may be subject to different setback requirements (potentially a reduced 5-foot setback for accessory structures), and we are confirming this with Monroe County planning staff. If the trash enclosure is not exempt from the 10-foot setback, this would constitute a minor encroachment into the setback area, which we address in Section V.B below.
(iii) VHG has advised that a variance was obtained from the Monroe County Planning Commission in connection with the original 2005 site plan approval for the parking structure's front setback, which was originally approved at 20 feet but subsequently constructed with a 32.4-foot setback, exceeding the variance requirement. We have requested a copy of the variance order from VHG's files and recommend verifying this with Monroe County records.
C. Vertical Improvements
The Survey notes building heights relative to grade for the principal structures on the Property, consistent with Table A Item 7(c). The main resort hotel building is depicted as having a maximum height of approximately 72 feet above grade (measured at the roofline of the tallest wing), and the parking structure is depicted at approximately 48 feet above grade.
Monroe County height restrictions in the applicable zoning district limit building height to 75 feet for resort hotel uses. The main resort hotel building at 72 feet above grade appears to comply with this restriction, though with only a 3-foot margin. The parking structure at 48 feet is well within the height limit.
The Survey depicts the parking structure with a notation of "1,200 SPACES (APPROX.)" on the face of the plat, which is consistent with the parking count represented by VHG and referenced in the Commitment Letter. We note that the Survey does not independently verify the exact parking count—the notation is based on information provided by the Borrower to the surveyor. We recommend obtaining a certified parking count from the Borrower's property manager or architect of record to confirm compliance with Monroe County parking requirements, as discussed further in Section X.
V. BOUNDARY AND ENCROACHMENT ANALYSIS
A. Boundary Lines
The Survey depicts all boundary lines of the Property with sufficient clarity and precision. The upland boundary lines (north, south, and west) are depicted as straight-line courses with bearings and distances. The eastern (waterfront) boundary is depicted as the mean high water line of the Atlantic Ocean (Florida Bay), which follows an irregular course along the shoreline.
We have reviewed the Survey for the presence and identification of boundary monuments. Landis & Shaw has identified iron rod and cap monuments at all major corners of the upland boundary. The Survey notes that the following monuments were found in place:
• Northwest corner: 5/8" iron rod with cap, stamped "LS 4219" (from prior survey)
• Southwest corner: 5/8" iron rod with cap, stamped "LS 4219" (from prior survey)
• Northeast corner (at intersection of upland boundary and mean high water line): No monument set due to proximity to water; noted by survey reference point
• Southeast corner (at intersection of upland boundary and mean high water line): No monument set due to proximity to water; noted by survey reference point
The absence of monuments at the northeast and southeast corners is expected given the waterfront nature of these boundary points and does not present a concern. The Survey notes state that reference points were established by triangulation from control monuments along Overseas Highway, which is consistent with accepted surveying practice for waterfront parcels in the Florida Keys.
We note that the mean high water line delineation is based on Landis & Shaw's field determination and may differ from the State of Florida's official mean high water line survey, if any. For purposes of this transaction, the surveyor's field determination is acceptable for title insurance purposes, and Meridian Title has indicated that it will insure based on the legal description as shown on the Survey.
B. Encroachments. Our review of the Survey reveals the following encroachment matters:
Encroachment No. 1: Concrete-Block Trash Enclosure into Side Setback Area
As noted in Section IV.B above, a concrete-block trash enclosure on the south side of the Property appears to encroach into the required 10-foot side setback area, with the structure located approximately 6.8 feet from the southern property boundary line. This encroachment does not cross the property boundary line itself—it is an encroachment into the required setback area only—and therefore does not constitute a trespass onto adjoining land. However, it may constitute a zoning violation if the trash enclosure is not exempt from the standard setback requirement under the LDC's accessory structure provisions.
Title Commitment: This matter is not specifically referenced as an exception in the Meridian Title commitment. It would not typically appear as a title exception because it involves the Property's own improvements within its own boundaries.
Impact on Lender's Mortgage: Minimal impact. The encroachment is de minimis in nature and does not affect the priority or enforceability of the proposed PAC mortgage. However, to the extent that a zoning violation exists, it could theoretically subject the Property to enforcement action by Monroe County.
Recommended Action: (i) Confirm with Monroe County planning staff whether the trash enclosure qualifies for a reduced setback under the accessory structure provisions of the LDC; (ii) if it does not qualify, request that VHG apply for an after-the-fact variance or relocate the trash enclosure; (iii) request a zoning endorsement (ALTA 3.1) from Meridian Title confirming coverage against loss arising from a violation of the setback requirement; (iv) discuss with WBD whether this matter is acceptable to PAC with the zoning endorsement in place.
Encroachment No. 2: Landscape Planter Encroachment onto Florida DOT Right-of-Way
The Survey depicts a raised landscape planter and decorative signage wall associated with the resort entrance that appears to extend approximately 2.3 feet beyond the western property boundary line into the Florida Department of Transportation ("FDOT") right-of-way for Overseas Highway (U.S. Route 1). The planter and signage wall are constructed of decorative coral rock and concrete block and appear to have been in place since the original 2006 construction of the resort.
Title Commitment: The Meridian Title commitment includes a general exception for "rights of the public and the State of Florida in and to any portion of the herein described lands lying within the right-of-way of Overseas Highway (U.S. Route 1)." This general exception encompasses the FDOT right-of-way but does not specifically address the encroachment of the Property's improvements into the right-of-way.
Impact on Lender's Mortgage: Moderate concern. Encroachments into FDOT rights-of-way are subject to removal at the direction of FDOT. If FDOT were to require removal of the planter and signage wall, the cost of removal and reconstruction within the property boundaries would be modest, but the loss of the decorative entrance feature could affect the resort's curb appeal. More significantly, FDOT could potentially seek enforcement action or penalties. We note, however, that this encroachment has been in place for approximately sixteen (16) years without apparent objection from FDOT.
Recommended Action: (i) Request that VHG investigate whether an FDOT encroachment permit or license was obtained for the planter and signage wall at the time of original construction; (ii) if no permit exists, recommend that VHG apply for an after-the-fact encroachment permit from FDOT District 6 (Miami); (iii) request an ALTA 28.1 endorsement (encroachment endorsement) from Meridian Title, or, if unavailable for an encroachment by the insured property onto third-party land, request affirmative coverage in the owner's and lender's policies against loss arising from FDOT's exercise of its right to require removal; (iv) raise this matter in the Title Objection Letter.
Encroachment No. 3: Overhead FPL Utility Lines
The Survey depicts overhead Fenmore Industries ("FPL") utility lines and poles along the western boundary of the Property, with certain guy-wires extending from a utility pole located within the FDOT right-of-way onto the Property. The guy-wires are anchored to a ground anchor located approximately 4.2 feet inside the western property boundary. While this is not a structural encroachment by an adjoining owner, it represents a physical intrusion of FPL facilities onto the Property.
Title Commitment: Schedule B-II of the Meridian Title commitment includes an exception for "Easement in favor of Vireo Group, as contained in instrument recorded in Official Records Book 1987, Page 344, Public Records of Monroe County, Florida." We have reviewed the recorded easement and confirmed that the FPL easement grants a 10-foot-wide easement along the western boundary of the Property. The guy-wire anchor at 4.2 feet from the boundary is within this 10-foot easement area.
Impact on Lender's Mortgage: No adverse impact. The FPL encroachment is authorized by the recorded easement, which predates the Property's development and will be an exception to the PAC mortgage. The easement area does not conflict with any building footprints.
Recommended Action: No action required. This matter is properly addressed by the existing FPL easement and the corresponding title exception.
We have identified no other encroachments of the Property's improvements onto adjoining lands, and no encroachments of adjoining improvements onto the Property. The marina facilities, while extending beyond the mean high water line, are located within areas subject to a submerged land lease from the State of Florida, which is addressed in Section VIII.B below.
C. Party Walls and Shared Structures
The Survey does not depict any party walls or shared structural elements with adjoining properties. The Property is a freestanding resort facility, and all improvements are entirely within the property boundaries (subject to the encroachment matters noted above). The adjoining properties to the north and south are separated by landscape buffers and fencing, with no shared structural elements observed.
VI. EASEMENTS, RIGHTS-OF-WAY, AND RESTRICTIONS
A. Recorded Easements
The Survey depicts multiple recorded easements affecting the Property. We have cross-referenced each depicted easement to the recording information shown on the Survey plat and to the exceptions set forth in Schedule B-II of the Meridian Title commitment. The following is a summary of each recorded easement:
1. FPL Utility Easement (O.R. Book 1987, Page 344)
A 10-foot-wide utility easement along the western boundary of the Property in favor of Vireo Group for the installation, operation, maintenance, and replacement of electric utility lines and related facilities. This easement is depicted on the Survey as a shaded strip along the western property line. The easement area does not conflict with any building footprints but does overlap with a portion of the resort's entrance driveway and landscaping. This easement corresponds to Schedule B-II Exception No. 4 in the Title Commitment.
2. Monroe County Utility Easement — Sanitary Sewer (O.R. Book 2104, Page 877)
A 15-foot-wide utility easement in favor of Monroe County for the installation, operation, and maintenance of sanitary sewer lines and related facilities. The easement runs in a generally east-west direction through the southern portion of the Property, connecting to the Monroe County sewer main located within the Overseas Highway right-of-way. The Survey depicts the centerline of the existing sewer main within this easement, together with two manholes. No building improvements encroach into this easement area. This easement corresponds to Schedule B-II Exception No. 5 in the Title Commitment.
3. Florida Keys Aqueduct Authority (FKAA) Water Main Easement (O.R. Book 2104, Page 891)
A 10-foot-wide utility easement in favor of the Florida Keys Aqueduct Authority for the installation, operation, and maintenance of water mains and related facilities. The easement runs parallel to and approximately 15 feet south of the Monroe County sewer easement through the southern portion of the Property. The Survey depicts the existing water main within this easement. No building improvements encroach into this easement area. This easement corresponds to Schedule B-II Exception No. 6 in the Title Commitment.
4. Camberwell Enterprises Telecommunications Easement (O.R. Book 2256, Page 1433)
A 5-foot-wide easement in favor of Harborline Partners LLC (predecessor to Camberwell Enterprises) for the installation, operation, and maintenance of telecommunications cables and related facilities. The easement runs along the western property boundary, partially overlapping with the FPL easement. The Survey depicts existing underground telecommunications conduit within this easement. This easement corresponds to Schedule B-II Exception No. 7 in the Title Commitment.
5. Drainage Easement in favor of South Florida Water Management District (O.R. Book 2310, Page 2205)
A 20-foot-wide drainage easement in favor of the South Florida Water Management District ("SFWMD") along the southern boundary of the Property. The easement provides for the maintenance of a stormwater conveyance swale that services both the Property and the adjoining property to the south. The Survey depicts the drainage swale within this easement, together with two stormwater inlets. The easement area does not conflict with any building footprints, though a portion of the resort's perimeter landscaping is located within the easement. This easement corresponds to Schedule B-II Exception No. 8 in the Title Commitment.
We note that landscaping within a drainage easement could impede the flow of stormwater and could be subject to removal by SFWMD. We recommend that VHG confirm that the landscaping within this easement does not impede the drainage function and that SFWMD has not objected to the presence of the landscaping.
6. Cross-Access Easement (O.R. Book 2487, Page 1877)
A reciprocal cross-access easement between the Property and the adjoining property to the south (Folio No. 00460780-000200), providing for shared vehicular access to Overseas Highway through a common driveway entrance. The Survey depicts the shared driveway at the southern boundary of the Property. The cross-access easement is 30 feet wide and extends from the Overseas Highway right-of-way eastward for a distance of approximately 150 feet. This easement benefits the Property as an appurtenant easement (providing an additional point of access to Overseas Highway) and burdens the Property to the extent that the adjoining property owner has reciprocal access rights through the shared driveway. This easement corresponds to Schedule B-II Exception No. 9 in the Title Commitment.
We recommend confirming that the cross-access easement runs with the land and is not subject to termination by the adjoining property owner, as continued access through the shared driveway is important for the resort's operations, particularly for service and delivery vehicle access.
7. Marina Access Easement (O.R. Book 2612, Page 0344)
A non-exclusive easement for pedestrian and vehicular access to the marina facilities, granted by the Borrower in favor of marina slip holders and their guests. This easement runs from the parking structure eastward through the Property to the marina docks. The easement is depicted on the Survey as a hatched pathway approximately 20 feet wide. This easement corresponds to Schedule B-II Exception No. 10 in the Title Commitment. This easement was granted in connection with the marina slip license agreements and is appurtenant to the marina operations. It does not affect the lender's mortgage lien on the Property.
B. Unrecorded Easements / Evidence of Use
Our review of the Survey reveals the following apparent easement or prescriptive use matter:
The Survey depicts a worn footpath along the northern boundary of the Property, running from the public sidewalk along Overseas Highway to the waterfront. The path appears to cross a portion of the Property between the spa wing and the northern boundary fence. Landis & Shaw has noted this path on the Survey with the legend "APPARENT FOOTPATH — ORIGIN UNKNOWN." There is no recorded easement corresponding to this footpath.
We recommend that VHG investigate the origin and nature of this footpath. If the path has been in continuous use by the public or by adjoining property owners for a sufficient period (20 years under Florida law for prescriptive easements), it could give rise to a claim of prescriptive easement. VHG should advise whether the resort has taken steps to prevent public use of this path (e.g., periodic closures, posted signage, or barriers) and whether any adjoining property owner has claimed a right of access across this portion of the Property. This matter should be raised in the Title Objection Letter, and we recommend requesting affirmative coverage from Meridian Title against loss arising from any claim of prescriptive easement over this footpath.
C. Rights-of-Way. The Survey depicts the following rights-of-way bounding or affecting the Property:
Overseas Highway (U.S. Route 1): The Property's western boundary is contiguous with the FDOT right-of-way for Overseas Highway (U.S. Route 1). The Survey depicts the FDOT right-of-way line along the western property boundary. The right-of-way width in this area is approximately 100 feet (50 feet from centerline). The Survey notes that the right-of-way boundary was established based on FDOT right-of-way maps (Section 90200-2604) on file with FDOT District 6. The Property has approximately 680 feet of frontage on Overseas Highway.
Internal Roadways: The Survey depicts internal resort roadways connecting the entrance drive to the parking structure, porte-cochère, service areas, and marina access. All internal roadways are depicted as private roadways within the Property boundaries and are not dedicated to public use. The Survey notes "PRIVATE ROAD — NOT DEDICATED" at the entrance driveway.
We have confirmed that the Property has legal access to Overseas Highway, a publicly dedicated and maintained roadway, as discussed further in Section VIII below.
D. Deed Restrictions and Covenants
The Survey references the following deed restrictions:
"This property is subject to the covenants, conditions, and restrictions set forth in that certain Declaration of Covenants, Conditions and Restrictions recorded in Official Records Book 2487, Page 1844, of the Public Records of Monroe County, Florida."
This reference corresponds to Schedule B-II Exception No. 11 in the Title Commitment. The Declaration pertains primarily to architectural standards, maintenance obligations, and shared infrastructure between the Property and the adjoining property to the south, and was recorded in connection with the original development of both parcels from a common grantor. We have reviewed the Declaration in connection with our Title Commitment Review Memorandum and do not believe it contains any restrictions that would materially impair the use of the Property as a resort hotel or the lender's mortgage lien. However, we flag this for further review in the Title Objection Letter to confirm that the Declaration does not contain any right of first refusal, consent requirements for mortgage financing, or other provisions that could affect the PAC Loan.
VII. FLOOD ZONE ANALYSIS
A. FEMA Flood Zone Designation
The Survey depicts the FEMA flood zone designation(s) applicable to the Property based on the current Flood Insurance Rate Map ("FIRM") for Monroe County, Florida. As set forth on the Survey face, the Property is located within two flood zones:
(i) Zone VE (El. 11): The eastern (waterfront) portion of the Property, encompassing the marina, the waterfront dining venue, and the eastern-most wing of the main hotel building, is located within FEMA Zone VE with a Base Flood Elevation ("BFE") of 11 feet (NAVD 88). Zone VE is a coastal high-hazard area subject to high-velocity wave action, and is the most restrictive special flood hazard area designation. Approximately 6.8 acres of the Property fall within Zone VE.
(ii) Zone AE (El. 9): The remaining upland portion of the Property, encompassing the majority of the main hotel building, the parking structure, the spa, and the pool areas, is located within FEMA Zone AE with a BFE of 9 feet (NAVD 88). Zone AE is a special flood hazard area subject to inundation by the 1% annual chance flood (100-year flood), but not subject to high-velocity wave action. Approximately 15.6 acres of the Property fall within Zone AE.
Key Largo, situated in the upper Florida Keys within Monroe County, is located entirely within a coastal high-hazard area and is among the most flood-prone jurisdictions in the United States. The dual-zone designation of the Property is consistent with the typical flood zone mapping for waterfront properties in Key Largo, where the VE zone extends inland from the shoreline and transitions to the AE zone further inland.
B. Base Flood Elevation
The applicable Base Flood Elevations for the Property are as follows:
The Survey depicts the finished floor elevations of the principal improvements on the Property and their relationship to the applicable BFE. Based on the Survey data:
• The main hotel building (first floor elevation): approximately 12.4 feet NAVD 88, which is 1.4 feet above the Zone AE BFE of 9 feet and 1.4 feet above the Zone VE BFE of 11 feet for those portions of the building within Zone VE.
• The parking structure (first floor elevation): approximately 10.2 feet NAVD 88, which is 1.2 feet above the Zone AE BFE of 9 feet.
• The spa wing (first floor elevation): approximately 11.8 feet NAVD 88, which is 2.8 feet above the Zone AE BFE of 9 feet.
• The waterfront dining venue (first floor elevation): approximately 12.6 feet NAVD 88, which is 1.6 feet above the Zone VE BFE of 11 feet.
• The marina harbormaster building (first floor elevation): approximately 13.1 feet NAVD 88, which is 2.1 feet above the Zone VE BFE of 11 feet.
All principal improvements appear to have first floor elevations above the applicable BFE, which is consistent with Monroe County building code requirements and FEMA National Flood Insurance Program ("NFIP") guidelines. However, we note that the margins above BFE are relatively narrow, particularly for the parking structure (1.2 feet above BFE) and the main hotel building in the Zone VE area (1.4 feet above BFE). Monroe County requires a minimum freeboard of 1 foot above BFE for new construction; the existing improvements appear to meet this standard based on the Survey elevations, though the parking structure is at the minimum.
C. Flood Insurance Implications
The Property's location within FEMA Zones VE and AE requires the Borrower to maintain flood insurance as a condition of the PAC Loan. The Commitment Letter requires the Borrower to maintain flood insurance in an amount not less than the lesser of (i) the outstanding principal balance of the Loan, (ii) the maximum amount available under the NFIP, or (iii) the replacement cost value of the improvements.
Given the Property's total insurable value and the $160,000,000 Loan amount, NFIP coverage alone will be insufficient, as the maximum NFIP policy limit for a commercial building is $500,000 per building. The Borrower currently maintains supplemental flood insurance coverage through Bayfront Specialty Insurance Corp. ("Bayfront"), a surplus lines insurer, in addition to NFIP base coverage. We recommend that the insurance review team confirm that the combined NFIP and Bayfront flood coverage meets PAC's requirements as to amount, deductible, and named insured/loss payee provisions.
The dual-zone designation (VE and AE) may result in different premium structures for different portions of the Property. Bayfront's surplus lines policy should be reviewed to confirm that it provides coverage for both Zone VE and Zone AE portions of the Property, including the marina facilities.
D. FEMA Map Panel Reference
The applicable FIRM panel for the Property is:
FIRM Panel No.: 12087C0719L Effective Date: November 4, 2020 Community Number: 120424 (Monroe County, unincorporated)
We have confirmed that this FIRM panel is the most current panel effective for the Property as of the date of this memorandum. We are not aware of any pending FEMA map amendments or revisions (Letters of Map Amendment ("LOMA") or Letters of Map Revision ("LOMR")) affecting the Property. We recommend that VHG confirm this with its flood insurance broker.
VIII. ACCESS
A. Legal Access
The Survey confirms that the Property has legal access to Overseas Highway (U.S. Route 1), a publicly dedicated and maintained roadway under the jurisdiction of the Florida Department of Transportation. Overseas Highway is the primary (and, for practical purposes, only) vehicular access route through the Florida Keys, and the Property's frontage on this roadway is critical to the resort's operations.
The Survey depicts two points of ingress and egress from Overseas Highway:
(i) Primary Entrance: A two-lane driveway entrance with a decorative entry feature and signage, located at the center of the Property's western boundary, providing access to the resort porte-cochère, parking structure, and internal roadway system. The driveway has an FDOT curb cut permit (depicted on the Survey with the notation "FDOT PERMIT NO. AP-0714-0042") and includes a left-turn lane on Overseas Highway.
(ii) Secondary Entrance (Shared): A secondary driveway entrance at the southern boundary of the Property, shared with the adjoining property to the south pursuant to the cross-access easement (O.R. Book 2487, Page 1877), discussed in Section VI.A.6 above. This entrance is used primarily for service and delivery vehicle access. The shared driveway has a separate FDOT curb cut permit (depicted on the Survey with the notation "FDOT PERMIT NO. AP-0714-0043").
Both access points are depicted on the Survey with dimensions and locations relative to the property boundary. We have confirmed that the FDOT curb cut permits are referenced on the Survey plat, which provides comfort that the access points are authorized by FDOT. We recommend that VHG provide copies of the current FDOT access permits for our files and confirm that the permits are current and not subject to revocation or modification.
We note that no access exists to the Property from any other public roadway. The Property is bounded on the east by water, on the north and south by private property, and on the west by Overseas Highway. Legal access to Overseas Highway is therefore essential, and any disruption of access (e.g., through FDOT right-of-way condemnation or modification of the curb cut permits) could materially impact the Property's value and operations.
B. Marina / Waterfront Access
The Survey depicts the 42-slip marina and associated waterfront access infrastructure on the eastern portion of the Property. The marina facilities extend beyond the mean high water line into submerged lands of the State of Florida. The Survey references the following:
(i) Submerged Land Lease: The Survey notes "SUBMERGED LAND LEASE — STATE OF FLORIDA, BOT FILE NO. 440435019" in the area of the marina docks and slips. This notation indicates that the marina operations are conducted pursuant to a submerged land lease from the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida, as administered by the Florida Department of Environmental Protection ("FDEP"). The submerged land lease area is depicted on the Survey with a dashed boundary line extending approximately 300 feet waterward from the mean high water line.
(ii) Riparian Rights: The Survey depicts the riparian rights line extending from the Property's upland boundary into the adjacent water body. The riparian rights line is shown in accordance with the Florida common law "channel line" methodology.
(iii) U.S. Army Corps of Engineers (USACE) Permit Boundary: The Survey notes "USACE PERMIT NO. SAJ-2005-01187" and depicts the USACE permit boundary for the existing marina structures. This notation indicates that the marina was permitted by the U.S. Army Corps of Engineers, Jacksonville District, under Section 10 of the Rivers and Harbors Act and Section 404 of the Clean Water Act.
(iv) FDEP Environmental Resource Permit: The Survey notes "FDEP ERP NO. 44-0274395-003-EI" referencing the environmental resource permit for the marina and associated waterfront improvements.
We recommend the following actions with respect to the marina and waterfront access matters:
(a) VHG should provide copies of the submerged land lease (BOT File No. 440435019), the USACE permit (SAJ-2005-01187), and the FDEP environmental resource permit (44-0274395-003-EI) for our review to confirm that all permits and leases are current, in good standing, and transferable in connection with the refinancing.
(b) The submerged land lease should be reviewed to confirm that the lease term extends beyond the maturity date of the PAC Loan (anticipated to be a 10-year term with two one-year extension options, maturing no later than January 2036) and that the lease is assignable as additional collateral for the Loan.
(c) We should confirm with Meridian Title whether the lender's title policy will provide coverage for the submerged land lease area or whether a separate leasehold endorsement is required.
(d) The Title Objection Letter should request that any title exceptions related to sovereignty submerged lands, riparian rights, or waterfront regulatory matters be appropriately qualified to confirm that they do not impair the Borrower's right to operate the marina.
IX. UTILITIES
The Survey depicts the following utility connections and utility infrastructure serving the Property, consistent with Table A Items 11(a):
Water: The Property is served by the Florida Keys Aqueduct Authority ("FKAA") municipal water supply. The Survey depicts a 6-inch water main connection from the FKAA main within the Overseas Highway right-of-way to the Property, entering through the FKAA water main easement (O.R. Book 2104, Page 891) on the southern portion of the Property. An FKAA meter vault is depicted near the western property boundary.
Sanitary Sewer: The Property is served by the Monroe County central sewer system. The Survey depicts an 8-inch sanitary sewer line connecting the Property to the Monroe County sewer main within the Overseas Highway right-of-way, running through the Monroe County utility easement (O.R. Book 2104, Page 877) on the southern portion of the Property. Two manholes are depicted within the easement area.
Electric: The Property is served by Vireo Group ("FPL"). The Survey depicts overhead FPL lines along the western property boundary within the FPL utility easement (O.R. Book 1987, Page 344), with underground service connections from a pad-mounted transformer to the main hotel building, parking structure, and other improvements. The pad-mounted transformer is depicted on the Survey at the northwest corner of the parking structure, within the FPL easement area.
Telecommunications: The Survey depicts underground telecommunications conduit along the western property boundary within the Camberwell Enterprises easement (O.R. Book 2256, Page 1433), with service connections to the main hotel building. A telecommunications junction box is depicted near the western property boundary.
Natural Gas: The Survey does not depict any natural gas service to the Property. This is consistent with the fact that natural gas service is generally not available in the Florida Keys, and the resort's kitchen and mechanical systems are understood to operate on electricity and propane (propane tanks are depicted on the Survey in the back-of-house service area).
Stormwater: The Survey depicts the Property's stormwater management system, including stormwater inlets, underground drainage piping, retention/detention areas, and outfall connections. The stormwater system discharges through the SFWMD drainage easement (O.R. Book 2310, Page 2205) along the southern property boundary.
We note the following observations regarding utilities:
(i) The FPL pad-mounted transformer is located within the FPL easement area, which is appropriate. However, the transformer is in close proximity (approximately 3.2 feet) to the northwest corner of the parking structure. While no encroachment exists, the close proximity could create access challenges for FPL maintenance and should be noted.
(ii) A propane storage facility (two 1,000-gallon above-ground propane tanks) is depicted on the Survey in the back-of-house service area on the south side of the Property. The tanks are located approximately 22 feet from the nearest building (the maintenance building) and approximately 15 feet from the southern property boundary. We recommend confirming compliance with applicable fire code setback requirements for propane storage. This matter may also be relevant to the environmental review being conducted by Oakridge Environmental Consulting Group, Inc.
X. PARKING
The Survey depicts the 1,200-space parking structure on the western portion of the Property, as well as limited surface parking areas. The parking structure is a multi-level precast concrete structure with approximately 142,000 square feet at ground level and is labeled on the Survey with the notation "1,200 SPACES (APPROX.)."
In addition to the parking structure, the Survey depicts the following surface parking: