MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP for the exclusive use of Briarwood Family Office LLC. This memorandum is not intended for distribution to, or reliance upon by, any third party. Any unauthorized disclosure, copying, or distribution of this memorandum or its contents is strictly prohibited.
From: Pamela Cross, Partner, and Theresa Kim, Senior Associate — Funds & Asset Management, Calderwood & Harkness LLP, 425 Lexington Avenue, New York, NY 10017
To: Julian R. Hargrove, Managing Director & CIO; Sandra M. Whitfield, General Counsel; Derek T. Calloway, Director of External Investments — Briarwood Family Office LLC, 780 Park Avenue, Suite 3200, New York, NY 10021
Date: February 5, 2024
Re: Side-Letter Negotiation Strategy — Briarwood Family Office LLC Proposed $75,000,000 Commitment to Meridian Peak Capital Partners Fund IV, L.P.
Matter No.: 1026-00001
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to set forth our recommended negotiation strategy for the side letter (the "Side Letter") to be entered into by and among Meridian Peak Capital Partners Fund IV, L.P., a Delaware limited partnership ("Fund IV" or the "Fund"), Meridian Peak Capital Partners GP IV LLC, a Delaware limited liability company and the general partner of Fund IV (the "General Partner" or "GP"), and Briarwood Family Office LLC, a New York limited liability company ("BFO" or the "Client"), in connection with BFO's proposed seventy-five million dollar ($75,000,000) limited partnership commitment to Fund IV (the "Commitment"). Both the Side Letter and the Fund IV Amended and Restated Agreement of Limited Partnership, dated December 20, 2023 (the "LPA"), are governed by the laws of the State of Delaware.
This memorandum should be read in conjunction with the following companion memoranda previously delivered or concurrently prepared by Calderwood & Harkness LLP ("C&H"):
(i) C&H's LPA Review Memorandum, dated February 2, 2024, which provides a detailed provision-by-provision analysis of the Fund IV LPA and identifies areas of potential concern and opportunities for negotiation;
(ii) C&H's PPM Summary & Risk Assessment Memorandum, dated February 2, 2024, which summarizes the key disclosures in the Fund IV Private Placement Memorandum dated December 15, 2023 (the "PPM") and evaluates the risk factors applicable to BFO's proposed investment; and
(iii) C&H's Fee & Economics Analysis Memorandum, dated February 4, 2024, which provides a quantitative analysis of the fee burden borne by BFO under the base LPA economic terms and models the impact of various fee reduction scenarios.
Together, these memoranda identified a number of key areas where the base LPA terms can and should be improved through side-letter negotiation. This memorandum translates those findings into a prioritized, actionable negotiation strategy.
Commitment Size and Negotiating Leverage. BFO's proposed Commitment of $75,000,000 represents approximately 5.0% of Fund IV's target size of $1,500,000,000 and approximately 4.29% of its hard cap of $1,750,000,000. This is a meaningful anchor-adjacent commitment that places BFO near the upper tier of non-anchor investors expected in Fund IV, providing substantial negotiating leverage. We note that the Commitment also represents approximately 4.17% of BFO's total assets under management of approximately $1.8 billion (as of December 31, 2023), underscoring the significance of this allocation within BFO's overall investment portfolio and the importance of securing appropriate protective terms.
Counterparty Counsel. The GP and Fund IV are represented by Ashford Crane & Hewitt LLP (Harrison K. Drummond, Partner; Elaine C. Woodbury, Senior Associate), located at 1 Federal Street, Suite 3600, Boston, MA 02110. C&H has worked opposite Ashford Crane on prior fund formation and side-letter matters and anticipates a professional and efficient negotiation process.
Proposed Timeline. C&H proposes to prepare and transmit the initial side-letter term sheet to Ashford Crane & Hewitt LLP on or about February 7, 2024, subject to BFO's confirmation of alignment with the strategy and priority ranking set forth herein. Our objective is to have a substantially final Side Letter in hand well in advance of Fund IV's anticipated first close on April 30, 2024.
Investment Committee Approval. We note that BFO's internal governance procedures require investment committee approval (3 of 4 members, with Julian R. Hargrove holding a veto right) before final execution of any subscription documents and Side Letter. Accordingly, this memorandum is designed to provide the investment committee with a comprehensive overview of the proposed negotiation strategy, including our assessment of the GP's likely responses and our recommended fallback positions, to facilitate timely decision-making and approval.
II. Background and Negotiating Context
A. Fund IV Overview
Fund Sponsor. Fund IV is sponsored by Meridian Peak Capital Advisors LLC ("MPCA"), a Delaware limited liability company co-founded in 2011 by Conrad J. Ellsworth (Managing Partner & Chief Executive Officer) and Priya Narayan (Managing Partner & Chief Investment Officer). MPCA is headquartered at 200 Clarendon Street, 42nd Floor, Boston, MA 02116. MPCA is registered as an investment adviser with the Securities and Exchange Commission ("SEC") under the Investment Advisers Act of 1940, as amended.
Investment Strategy. Fund IV's investment strategy focuses on value-add and opportunistic investments in North American commercial real estate, real estate operating companies, and asset management platforms. As discussed in detail in C&H's PPM Summary & Risk Assessment Memorandum, the strategy encompasses a broad range of real estate asset classes, including office, multifamily, industrial, retail, and mixed-use properties, as well as investments in companies that own, operate, or manage real estate or real estate-related assets. The strategy's scope — particularly with respect to operating companies and asset management platforms — creates the potential for investments with adjacency to sectors that fall outside BFO's investment policy, a consideration addressed in our discussion of excuse and exclusion rights below.
Track Record. MPCA has raised three prior commingled funds (Fund I, Fund II, and Fund III) aggregating approximately $3.2 billion in total commitments. Fund I (vintage 2012, $450 million) is fully liquidated. Fund II (vintage 2015, $850 million) is in its harvest period. Fund III (vintage 2019, $1.9 billion) is in its investment period. The track record has been covered in detail in C&H's PPM Summary & Risk Assessment Memorandum and is not repeated here, but we note that MPCA's performance across Funds I and II has been competitive with upper-quartile managers in the value-add and opportunistic real estate space.
Fund IV Structure and Registration. The General Partner of Fund IV is Meridian Peak Capital Partners GP IV LLC (EIN: 92-1672483), a Delaware limited liability company whose sole member is MPCA. Fund IV itself (EIN: 92-1684537) was formed as a Delaware limited partnership under Certificate No. LP-2023-08841 filed with the Delaware Secretary of State. Fund IV is exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506(b) of Regulation D promulgated thereunder. A Form D was filed with the SEC on January 2, 2024.
Target Fund Size and Close Schedule. Fund IV has a target fund size of $1,500,000,000 and a hard cap of $1,750,000,000. The anticipated first close is April 30, 2024, and the final close deadline is October 31, 2024. This extended closing window creates a meaningful period during which additional LPs may negotiate and receive side-letter concessions — a central consideration underpinning our emphasis on robust MFN protections for BFO, as discussed in Section III below.
Placement Agent. Pinnacle Capital Markets LLC (Roland S. Abernathy, Managing Director), a Delaware limited liability company and registered broker-dealer located at 399 Park Avenue, 18th Floor, New York, NY 10022, has been engaged as the placement agent for Fund IV pursuant to an engagement letter dated November 1, 2023. The placement agent fee is 1.0% on commitments, which, with respect to BFO's $75,000,000 Commitment, amounts to $750,000.
Fund Administrator. Granite Ledger Fund Services LLC (Catherine J. Halloran, Client Relationship Manager), located at 100 Summer Street, Suite 2700, Boston, MA 02110, serves as the fund administrator for Fund IV.
Fund Auditor. Brockton Marsh & Associates LLP (Neil A. Strickland, Audit Partner), located at 500 Boylston Street, 30th Floor, Boston, MA 02116, serves as the independent auditor for Fund IV.
Offering Documentation. The PPM for Fund IV is dated December 15, 2023, and was received by C&H on behalf of BFO on January 26, 2024, together with the LPA, form of subscription agreement, and investor questionnaire.
B. Base LPA Economic Terms
The following summarizes the key economic terms of Fund IV as set forth in the LPA. A comprehensive analysis of these terms, including benchmarking against comparable funds, is provided in C&H's Fee & Economics Analysis Memorandum dated February 4, 2024.
Management Fee. The GP is entitled to receive an annual management fee equal to 1.75% per annum of each LP's committed capital during the investment period (which commences on the date of the final close and extends for a period of four (4) years thereafter) and 1.50% per annum of each LP's invested capital (net of returns of capital and realized losses) following the expiration of the investment period. Management fees are calculated and paid quarterly in advance.
Carried Interest. The GP (or its designated carry vehicle) is entitled to receive a carried interest distribution equal to 20% of the net profits of the Fund, subject to the satisfaction of an 8% per annum preferred return (compounded annually) to the limited partners. The distribution waterfall is structured as a whole-fund European waterfall, meaning that carried interest is calculated and distributed on a fund-level (rather than deal-by-deal) basis, with the GP's carried interest allocation not commencing until the limited partners have received a return of their aggregate contributed capital plus the cumulative preferred return thereon.
Fund Term. The Fund has a term of ten (10) years from the final close, subject to two (2) one-year extensions at the sole discretion of the GP. Additional extensions beyond the two discretionary extensions require the consent of a majority-in-interest of the limited partners.
Other Key Provisions. The base LPA contains standard key person provisions (designating both Conrad J. Ellsworth and Priya Narayan as key persons), limited excuse rights (with the scope of excusable investments narrowly defined), standard transfer restrictions requiring the prior written consent of the GP (which may be granted or withheld in the GP's sole discretion), and standard confidentiality provisions requiring limited partners to maintain the confidentiality of fund information.
C. BFO's Leverage Points
We assess BFO's negotiating leverage to be strong for the following reasons, each of which should be referenced and relied upon in the course of discussions with Ashford Crane:
Commitment Size. BFO's $75,000,000 Commitment represents 5.0% of Fund IV's target fund size of $1,500,000,000, placing BFO as one of the larger commitments expected in Fund IV, near the upper tier of non-anchor investors. While BFO is not at the anchor investor level (which we understand to be approximately $200,000,000 or more), its Commitment is significant enough to command meaningful concessions. MPCA has an economic incentive to accommodate a commitment of this magnitude, as it represents a substantial portion of the capital needed to achieve first close.
Sophisticated and Desirable LP. BFO is a well-known and well-regarded single-family office with a seventeen-year track record (established 2007) and significant expertise in real estate investment and development. BFO is a strategically desirable LP for MPCA's real estate-focused platform, and MPCA should be expected to value the imprimatur that BFO's participation provides. Unlike institutional investors that may face internal bureaucratic constraints or public disclosure obligations, BFO can move efficiently and discreetly, which is attractive to fund sponsors.
Regulatory Simplicity. BFO is not an ERISA plan, governmental plan, or tax-exempt entity. It has no regulatory constraints that would complicate the GP's administration of Fund IV or require the creation of blocker vehicles or alternative investment structures. This clean regulatory profile should ease the GP's receptiveness to BFO's governance-oriented requests, as granting those requests will not impose administrative burdens on the GP.
Timing. Fund IV is approaching its anticipated first close on April 30, 2024. MPCA will be strongly motivated to secure a commitment of BFO's size early in the fundraise to demonstrate momentum and to reach or approach its first-close target. Early first-close participants typically command the most negotiating leverage, as the fund sponsor is under the greatest pressure to secure commitments.
Strategic Alignment and Deal-Sourcing Synergies. BFO's existing network in northeastern commercial real estate development aligns directly with MPCA's investment strategy. The Hargrove family's relationships and market knowledge in the northeastern U.S. real estate market could offer deal-sourcing synergies for MPCA, further enhancing BFO's strategic value as an LP.
III. Priority-Ranked Negotiation Objectives
Set forth below are our recommended negotiation objectives, ranked in order of priority based on our assessment of (i) the importance of each provision to BFO's economic interests and governance needs, (ii) the likelihood of obtaining the requested term, and (iii) the relative market-standard nature of the request. For each objective, we describe the recommended opening position, the underlying rationale, and our proposed fallback positions.
Priority 1: Most Favored Nation (MFN) Rights
A. Recommended Terms. We recommend that the Side Letter include a comprehensive most favored nation provision pursuant to which BFO would be entitled to elect any economic or governance term granted by the GP or Fund IV to any other limited partner committing fifty million dollars ($50,000,000) or more to Fund IV, subject to limited carve-outs as described below.
The Side Letter should specifically use the phrase "most favored nation" in describing this provision to avoid any ambiguity as to its scope and intent. The MFN provision is the cornerstone of BFO's side-letter protections and should be drafted with precision to ensure that it captures the broadest possible universe of concessions granted to similarly situated LPs.
MFN Mechanics. Within fifteen (15) business days following the close at which BFO is admitted as a limited partner (and following any subsequent close at which additional limited partners are admitted), the GP shall deliver to BFO a redacted summary of all material side-letter terms granted to other limited partners whose commitments equal or exceed the applicable MFN eligibility threshold. The redacted summary shall identify, at a minimum, (i) the category of provision (e.g., fee reduction, co-investment right, reporting enhancement, governance right), (ii) the substance of the provision, and (iii) the commitment level tier to which the provision was granted. The identity of the LP receiving the provision may be redacted.
MFN Election Period. BFO shall have a period of twenty (20) business days from its receipt of the redacted summary (the "MFN Election Period") to deliver written notice to the GP electing to adopt any one or more of the additional terms described in the summary. Upon timely election, the elected terms shall be deemed incorporated into BFO's Side Letter and shall be effective as of the date of BFO's election notice.
B. Proposed Carve-Outs (Acceptable Exclusions). We recommend that BFO accept the following limited carve-outs from the MFN provision, each of which is consistent with market practice and reasonable in scope:
(i) Anchor Investor Carve-Out. Terms granted to "Anchor Investors," defined as limited partners committing two hundred million dollars ($200,000,000) or more to Fund IV (representing approximately 13.33% of the Fund's target fund size). This is a market-standard carve-out. Anchor-level commitments represent a materially different level of investment and are appropriately excluded from the MFN universe because the concessions granted to such investors — which may include meaningful carried interest modifications, advisory board seats, or preferential co-investment allocations — are commensurate with their outsized commitment.
(ii) Regulatory/Fiduciary Accommodation Carve-Out. Terms granted to ERISA plans, tax-exempt entities, or governmental plan investors that are driven by regulatory or fiduciary requirements applicable to such investors (e.g., ERISA plan asset provisions, unrelated business taxable income protections, or public records act accommodations). These terms are driven by the regulatory status of the receiving investor, not by negotiating leverage, and do not represent economic or governance benefits that would be relevant to BFO.
(iii) GP Affiliate Carve-Out. Terms available to affiliates of the GP, including principals, employees, and related vehicles of MPCA, whose participation in Fund IV is subject to different economic arrangements as a matter of course.
C. Rationale and Leverage. The MFN provision is the single most important protective right in side-letter negotiations and should be treated as non-negotiable in substance. Its function is to ensure that BFO captures any downward fee drift, enhanced governance rights, or other favorable terms that may be granted to similarly situated LPs during subsequent closes. This is particularly critical in the context of Fund IV, where the final close is not anticipated until October 31, 2024 — a full six months after the anticipated first close. During that window, there is substantial risk that later-closing LPs with comparable or larger commitments will negotiate more favorable terms. Without robust MFN protections, BFO could find itself at a significant economic or governance disadvantage relative to investors admitted at later closes.
BFO's Commitment of $75,000,000 is well above the proposed $50,000,000 MFN eligibility threshold, ensuring that BFO will be entitled to receive the benefit of terms granted to a broad universe of LPs. The $50,000,000 threshold is designed to capture the terms granted to the most meaningful institutional commitments while excluding small or de minimis commitments that may receive only standard, non-negotiable side-letter terms (e.g., basic confidentiality carve-outs or regulatory disclosures).
D. Fallback Positions. We anticipate that the GP may push back on certain aspects of the MFN provision. Our recommended fallback positions are as follows:
• MFN Eligibility Threshold. If the GP resists the $50,000,000 threshold, C&H could accept a higher threshold up to $60,000,000. BFO remains well above this level, and the incremental reduction in scope is unlikely to have a material impact given that the most significant side-letter concessions are typically granted to LPs committing $50,000,000 or more.
• MFN Election Period. If the GP pushes for a shorter MFN election period, C&H could accept fifteen (15) business days as a compromise. This still provides BFO with adequate time to review the redacted summary, consult with C&H, and make an informed election.
• Anchor Investor Carve-Out Threshold. If the GP insists on expanding the Anchor Investor carve-out beyond the $200,000,000 threshold to a lower commitment level, C&H recommends firmly resisting any threshold below $150,000,000. A lower threshold would significantly narrow the universe of terms available to BFO under the MFN provision and could effectively gut the provision's protective value if a substantial number of LPs are excluded from its scope.
Priority 2: Excuse/Exclusion Rights
A. Recommended Scope. We recommend that the Side Letter grant BFO the right to elect to be excused from participation in any Fund IV investment involving the following categories:
(a) Cannabis-Related Assets. Any investment in assets that are used in connection with, leased to, or operated by a cannabis business, including but not limited to cultivation facilities, processing facilities, dispensaries, and real property leased to cannabis operators, regardless of whether such business is legal under applicable state law.
(b) Gaming/Casino Properties. Any investment in gaming or casino properties, including hotels, resorts, or mixed-use developments that derive a material portion of their revenue from gaming operations.
(c) Sanctioned Jurisdictions. Any investment in jurisdictions that are subject to comprehensive U.S. economic or trade sanctions administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury, including any jurisdiction subject to a sanctions program under Executive Order or statute.
(d) ERISA Plan Asset Investments. Any investment that would cause BFO to be treated as holding "plan assets" under Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the regulations promulgated thereunder (29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA).
Excuse Mechanics. The excuse right should be structured as an affirmative election by BFO. Upon receipt of a capital call notice identifying a proposed investment that falls within any of the above categories, BFO shall have fifteen (15) business days from the date of receipt of the capital call notice to deliver written notice to the GP electing to be excused from such investment. If BFO does not deliver an excuse election notice within the 15-business-day period, BFO shall be deemed to have elected to participate in the investment.
Effect of Excuse. An excused investor's unfunded commitment shall be reduced dollar-for-dollar by the amount of the excused investment, and BFO shall have no obligation to fund capital calls with respect to such investment. BFO shall not be entitled to receive any distributions or other economic benefits with respect to the excused investment.
B. Excuse Cap. C&H's Recommended Opening Position. We recommend that BFO's initial negotiating position be that there should be no aggregate cap on the total amount of investments from which BFO may elect to be excused. This position maximizes BFO's flexibility and avoids the risk that BFO could exhaust its excuse capacity on early investments, leaving it without protection against later investments in excluded categories.
Anticipated GP Counter. Based on market practice and our understanding of Meridian Peak's approach in prior fund side letters, we expect the GP to counter with a cap on total excused investments as a percentage of BFO's aggregate Commitment. We expect the GP's initial counter to be a 15% cap, which would limit BFO's total excused investments to $11,250,000 ($75,000,000 × 15%).
C&H's Recommended Counter-Position. We recommend that BFO counter with a 25% cap, which would provide for total excused investments of up to $18,750,000 ($75,000,000 × 25%). This level provides meaningful headroom given that Fund IV's strategy includes investments in real estate operating companies and asset management platforms, where cannabis and gaming adjacency is plausible and where the universe of potentially excusable investments may be broader than in a traditional real estate equity fund.
Fallback. If the GP is firm on a lower cap, we recommend accepting a 20% cap as a final fallback position, which would provide for total excused investments of up to $15,000,000 ($75,000,000 × 20%). We do not recommend accepting a cap below 20%.
C. Rationale. Cannabis and Gaming Exclusions. BFO's cannabis and gaming exclusions reflect the Hargrove family's long-standing investment policy and reputational considerations. These exclusions are deeply held and have been consistently applied across BFO's investment portfolio. We do not anticipate that these exclusions will be controversial, as a growing number of institutional and family office investors maintain similar exclusion policies, and the GP should be accustomed to accommodating such requests.
ERISA Plan-Asset Excuse. The ERISA plan-asset excuse is a technical protection designed to ensure that BFO is not inadvertently deemed to hold "plan assets" under the Department of Labor's plan asset regulations. Although BFO is not itself an ERISA plan, certain investments could theoretically cause BFO to be treated as holding plan assets if the underlying investment vehicle has a sufficient level of plan asset participation. If triggered, plan asset status would impose fiduciary obligations and prohibited transaction restrictions under ERISA that would be burdensome and inappropriate for a family office investor. This is a standard protective provision.
Sanctions Exclusion. The sanctions exclusion is a standard compliance protection designed to ensure that BFO does not participate in investments that could expose BFO to liability under OFAC-administered sanctions programs. Given Fund IV's focus on North American real estate, this exclusion is unlikely to be triggered frequently, if at all, but it provides important protection against unforeseen circumstances.
A separate Excuse Rights Analysis Memorandum providing a more detailed analysis of the legal enforceability, market context, and drafting considerations for the proposed excuse provisions will be prepared by C&H and delivered to BFO in due course.
Priority 3: Management Fee Reduction
A. Recommended Terms. We recommend that the Side Letter provide for a reduction in the management fee payable by BFO as follows:
• Investment Period: Reduced from 1.75% to 1.50% per annum on committed capital (a 25 basis point reduction).
• Post-Investment Period: Reduced from 1.50% to 1.25% per annum on invested capital (a 25 basis point reduction).
This represents a uniform 25 basis point reduction in each tier of the management fee schedule.
B. Economic Impact. The proposed fee reduction would generate the following savings for BFO:
Investment Period Savings:
• Standard annual management fee at 1.75%: $75,000,000 × 1.75% = $1,312,500 per year
• Reduced annual management fee at 1.50%: $75,000,000 × 1.50% = $1,125,000 per year
• Annual savings: $75,000,000 × 0.25% = $187,500 per year
• Cumulative savings over the 4-year investment period: $187,500 × 4 = $750,000
Post-Investment Period Savings: Post-investment period savings are variable, as they depend on the amount of invested capital outstanding at any given time (net of returns of capital and realized losses). However, the 25 basis point reduction provides an ongoing benefit throughout the post-investment period, the duration of which could extend for up to six years (assuming the full 10-year fund term with two 1-year extensions) or longer.
When combined with the placement agent fee offset discussed in Priority 9 below, the aggregate fee savings available to BFO are substantial and materially improve the net economics of the investment.
C. Leverage and Market Context. A 25 basis point management fee reduction is well within market range for limited partners committing at BFO's level ($75,000,000, or 5.0% of Fund IV's target fund size). Anecdotally and based on our experience in comparable fund transactions, fee reductions of 15 to 35 basis points are commonly granted to LPs with commitments in the $50,000,000 to $100,000,000 range. BFO's commitment sits squarely within this range.
Moreover, MPCA's prior funds have granted fee reductions to LPs of similar size. C&H's MFN Provision Comparison Matrix (prepared February 5, 2024) confirms that the proposed 25 basis point reduction is consistent with market practice and with concessions granted in MPCA's Fund III side letters. This precedent within MPCA's own fund complex strengthens BFO's position.
We do not propose any modification to the carried interest structure (20% over 8% preferred return, whole-fund European waterfall). Carried interest modifications — including reductions in the carry percentage, increases in the preferred return hurdle, or changes to the waterfall structure — are typically reserved for anchor-level investors ($200,000,000+) and would be exceptionally difficult to obtain at BFO's commitment level. Pursuing a carry modification would risk spending negotiating capital on a request that is unlikely to succeed and could generate GP ill will.
D. Fallback. If the GP resists the 1.50%/1.25% fee schedule, C&H could accept 1.60%/1.35% as an absolute floor, but this should be a last resort and should not be offered until the GP has made clear that further concession is not forthcoming. A 1.60%/1.35% fee schedule still provides BFO with a meaningful 15 basis point reduction in each tier, translating to annual savings of $112,500 during the investment period and cumulative savings of $450,000 over the four-year investment period.
As an alternative to reducing the overall fee percentages, we could propose a management fee step-down structure at the midpoint of the investment period — for example, 1.75% for the first two years of the investment period, stepping down to 1.50% for the remaining two years. This approach may be more palatable to the GP because it preserves the headline fee rate during the early years of the investment period, when the GP's organizational and deal-sourcing costs are highest. However, the economic benefit to BFO is reduced relative to a flat 1.50% rate, so this alternative should be offered only as a creative compromise if the GP is resistant to a straight reduction.
Priority 4: Co-Investment Rights
A. Recommended Terms. We recommend that the Side Letter grant BFO a pro rata co-investment opportunity on any Fund IV deal exceeding $100,000,000 in equity (i.e., the equity component of the investment, excluding leverage). The key terms of the co-investment right should be as follows:
• Trigger: The co-investment right is triggered on any Fund IV investment with total equity of $100,000,000 or more.
• Allocation: BFO shall be entitled to co-invest up to its pro rata share, calculated based on BFO's percentage of total commitments to Fund IV.
• Economics: Co-investment to be offered at no management fee and no carried interest (commonly referred to as "no fee / no carry" terms).
• Timing and Process: The GP shall notify BFO of the co-investment opportunity in writing, including material terms and transaction structure, with reasonable advance notice to allow BFO to evaluate the opportunity. BFO shall have a reasonable period (not less than ten (10) business days) to accept or decline the co-investment opportunity.
B. Rationale. Co-investment rights are a key value driver for BFO for several reasons. First, co-investments allow BFO to increase its exposure to the most attractive deals in Fund IV's portfolio at significantly reduced economics — specifically, at no management fee and no carried interest. This effectively reduces the blended fee burden across BFO's total exposure to MPCA's platform. Second, BFO has substantial in-house real estate expertise, derived from the Hargrove family's multi-generational commercial real estate development background, and is well-positioned to evaluate co-investment opportunities efficiently and on a compressed timeline. Third, the $100,000,000 equity threshold ensures that the co-investment right is triggered only on Fund IV's larger deals, which are likely to be the platform and operating company acquisitions that represent MPCA's most differentiated investment thesis. These are precisely the types of investments where BFO's incremental capital and market knowledge could be most valuable to MPCA.
C. Fallback.
• Fee/Carry Terms. If the GP resists no-fee/no-carry co-investment economics, accept a reduced fee structure — for example, a management fee of 0.50% per annum and carried interest of 10% over an 8% preferred return. While this represents a departure from the preferred no-fee/no-carry structure, it still provides BFO with meaningfully better economics than fund-level participation.
• Equity Threshold. If the GP counters with a higher equity threshold (e.g., $150,000,000), this is acceptable as a compromise. A $150,000,000 threshold will reduce the frequency of co-investment opportunities but will still capture Fund IV's largest and most transformative transactions.
Priority 5: Enhanced Reporting
A. Recommended Terms. We recommend that the Side Letter include enhanced reporting provisions requiring the GP to deliver the following reports to BFO:
• Quarterly Portfolio-Level Reports. To be delivered within forty-five (45) days of each quarter-end (versus the LPA's less specific reporting timeline). Reports to include investment-level detail, including (i) property and asset-level performance data, (ii) valuation methodology and assumptions, (iii) leverage metrics (including loan-to-value ratios, debt service coverage ratios, and maturity schedules), and (iv) a summary of material events or developments with respect to portfolio investments.
• Audited Annual Financial Statements. To be delivered within ninety (90) days of fiscal year-end, prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and audited by Fund IV's independent auditor.
• Annual ESG Reporting. An annual report covering environmental, social, and governance ("ESG") metrics for Fund IV's portfolio investments, including, to the extent available, energy consumption and efficiency data, greenhouse gas emissions, workforce and community impact metrics, and governance practices at the portfolio company level.
B. Rationale. As a single-family office allocating approximately 4.17% of its total AUM to a single fund commitment, BFO requires robust and timely reporting to satisfy its internal investment monitoring processes, family governance requirements, and the expectations of Hargrove family members who participate in the oversight of BFO's investment portfolio. The base LPA's reporting provisions are less specific as to timing and content, which is typical for real estate fund LPAs but insufficient for an investor of BFO's size and sophistication.
ESG reporting is increasingly expected by institutional-quality investors and is consistent with BFO's investment policy, which incorporates ESG considerations as part of its overall risk management and stewardship framework. We note that MPCA has publicly expressed a commitment to responsible investment practices, and we do not anticipate significant resistance to a reasonable ESG reporting request.
C. Fallback.
• Quarterly Reporting Deadline. If the GP resists the 45-day quarterly reporting deadline, accept sixty (60) days as a compromise. This still provides a meaningful improvement over the LPA's less specific timeline.
• ESG Reporting. If the GP resists a standalone annual ESG report, accept a commitment to provide ESG data "to the extent available" or on a "commercially reasonable efforts" basis, which preserves the principle of ESG disclosure while accommodating the practical reality that MPCA's ESG data collection capabilities may vary across its portfolio.
Priority 6: Key Person Enhancement
A. Recommended Terms. In addition to the standard key person provisions contained in the LPA (which designate both Conrad J. Ellsworth and Priya Narayan as "Key Persons" and may provide for a fund-level suspension of the investment period and a limited partner vote upon the departure of a Key Person), we recommend that the Side Letter include an enhanced, BFO-specific key person provision as follows:
• BFO-Specific Opt-Out Right. Upon the departure of either Conrad J. Ellsworth or Priya Narayan from active management of Fund IV (whether by resignation, termination, disability, death, or material reduction in duties), BFO shall have the right to elect to cease future capital calls — effectively opting out of future investment activity by the Fund with respect to BFO's unfunded commitment.
• 90-Day Suspension Window. Upon the occurrence of a key person event, the investment period shall be suspended for a period of ninety (90) days with respect to BFO, during which time BFO shall not be required to fund any capital calls for new investments. During this suspension period, BFO shall evaluate the impact of the key person departure and make an informed decision regarding its continued participation in the Fund.
• Exercise of Opt-Out. If BFO elects to exercise its opt-out right, BFO shall deliver written notice to the GP prior to the expiration of the 90-day suspension period. Upon exercise, BFO's unfunded commitment shall be released, and BFO shall have no further obligation to fund capital calls for new investments. BFO shall remain obligated with respect to capital calls for follow-on investments in existing portfolio investments and for fund expenses.
B. Rationale. MPCA is a two-person-led organization. The investment thesis, deal sourcing, underwriting, and portfolio management functions of Fund IV are substantially dependent on the active involvement of both Conrad J. Ellsworth and Priya Narayan. The loss of either co-founder would materially alter the investment thesis and risk profile of Fund IV and could have a significant adverse impact on fund performance. A BFO-specific opt-out right provides BFO with a meaningful remedy in the event of a key person departure — one that is independent of the fund-level key person mechanism in the LPA, which may be subject to a majority-in-interest LP vote that BFO cannot control.
The 90-day suspension window is designed to give BFO sufficient time to evaluate the circumstances and implications of the key person departure, consult with C&H and its financial advisors, and make a deliberate and informed decision. This is preferable to an immediate automatic release of commitments, which could create adverse consequences for the Fund and for BFO's ongoing invested capital.
C. Fallback.
• If GP Resists BFO-Specific Opt-Out. Propose a modified right pursuant to which the GP would be required to notify BFO in writing within five (5) business days of a key person departure, and BFO would have the right to reduce its unfunded commitment by up to 50%. This scaled-back approach preserves BFO's protective interest while reducing the potential disruption to Fund IV's capital base.
• Suspension Period. If the GP resists 90 days, consider accepting sixty (60) days as a compromise, but open the negotiation at 90 days to preserve room for concession.
• Dual Key Person Departure. The departure of both Conrad J. Ellsworth and Priya Narayan simultaneously (or within a six-month period) should trigger an automatic right for BFO to withdraw its entire unfunded commitment without the need for an election. This is a catastrophic-risk protection that should be non-negotiable.
Priority 7: Transfer Rights
A. Recommended Terms. We recommend that the Side Letter grant BFO the right to transfer all or any portion of its limited partnership interest in Fund IV to any Hargrove family entity — defined as any entity directly or indirectly controlled by, or established for the benefit of, Julian R. Hargrove or members of the Hargrove family — without the prior written consent of the GP. Such transfers would be subject to compliance with applicable securities laws (including the absence of a requirement to register the transfer under the Securities Act of 1933, as amended) and applicable tax considerations (including the absence of any adverse tax consequences to the Fund or its other limited partners).
The transferee shall be required to execute a joinder or assumption agreement pursuant to which it assumes all obligations of BFO under the LPA and the Side Letter, and the transferee shall be bound by all provisions of the LPA and the Side Letter applicable to BFO.
B. Rationale. As a single-family office, BFO may need flexibility to restructure its fund holdings among family trusts, holding companies, or other family-controlled entities for estate planning, tax planning, or governance purposes. These restructuring needs are common and routine for family office investors, and the ability to transfer fund interests among family entities without the friction of GP consent is an important structural accommodation.
This is a standard and widely accepted request for family office LPs. GP consent requirements for intra-family transfers are generally unnecessary and can delay or frustrate legitimate estate and tax planning transactions. We do not anticipate that this request will raise significant concerns for the GP, particularly given that the transferee will assume all of BFO's obligations and the economic impact on the Fund is neutral.
C. Fallback.
• GP Consent Requirement. If the GP insists on retaining a consent right for intra-family transfers, accept a consent standard of "not to be unreasonably withheld, conditioned, or delayed." This preserves the GP's right to review the transfer and the proposed transferee while ensuring that consent cannot be arbitrarily denied.
• Advance Notice. Accept the GP's requirement for advance written notice (e.g., 30 days) prior to the consummation of any transfer. This is a reasonable administrative request and does not materially impair BFO's transfer rights.
Priority 8: Accelerated Tax Reporting (K-1 Delivery)
A. Recommended Terms. We recommend that the Side Letter include a provision requiring the Fund to use commercially reasonable efforts to deliver Schedule K-1s (IRS Form 1065, Schedule K-1) to BFO within seventy-five (75) days of the end of each fiscal year, compared to the standard 120-day delivery timeline set forth in the LPA. We note that the provision should be framed as a "commercially reasonable efforts" obligation rather than a hard deadline, which provides the GP with appropriate flexibility to address unforeseen delays while establishing a clear target.
B. Rationale. BFO's tax compliance calendar requires timely receipt of Schedule K-1s to avoid the filing of extension requests and the estimation of tax liabilities, both of which impose administrative costs and potential interest expense. A 75-day target is aggressive but achievable if the Fund's administrator, Granite Ledger Fund Services LLC, and auditor, Brockton Marsh & Associates LLP, are properly resourced and prioritize K-1 preparation. Early delivery of K-1s is a tangible and low-cost benefit that the GP can provide to demonstrate responsiveness to BFO's administrative needs.
C. Fallback.
• 90-Day Compromise. If the GP resists the 75-day target, accept ninety (90) days as a compromise. This still represents a meaningful 30-day improvement over the LPA's standard 120-day timeline and should be achievable by a well-administered fund.
• "Commercially Reasonable Efforts" Qualifier. Accept the inclusion of a "commercially reasonable efforts" qualifier (which we have already proposed as part of the opening position) rather than a hard, mandatory deadline. This qualifier is appropriate given that K-1 delivery timelines depend in part on the performance of third-party service providers and the complexity of the Fund's tax position.
Priority 9: Placement Agent Fee Offset
A. Recommended Terms. We recommend that the Side Letter include a provision requiring that the placement agent fee payable to Pinnacle Capital Markets LLC with respect to BFO's Commitment be 100% offset against management fees payable by BFO. The placement agent fee on BFO's $75,000,000 Commitment, at the rate of 1.0%, is $750,000. Under the proposed offset, this $750,000 would be credited against management fees payable by BFO, ratably over the investment period (i.e., $187,500 per year for four years, or $46,875 per quarter).
B. Rationale. BFO should not bear, directly or indirectly, the cost of a placement agent fee that benefits the GP. The placement agent's services inure primarily to the benefit of the GP and MPCA in connection with their fundraising efforts. It is standard market practice for LPs of BFO's size to request that placement agent fees be offset against management fees, and this is a well-established and widely accepted term in the institutional LP community.
The $750,000 placement agent fee offset, when combined with the proposed 25 basis point management fee reduction discussed in Priority 3 above, provides significant aggregate fee savings. During the four-year investment period alone, the combined savings would amount to approximately $1,500,000 ($750,000 in management fee reductions plus $750,000 in placement fee offset), representing a meaningful reduction in BFO's all-in cost of participation in Fund IV.
C. Fallback.
• 50% Offset. If the GP resists a 100% offset, accept a minimum 50% offset ($375,000), but push firmly for the full offset before retreating to this position. A 50% offset is the floor below which C&H does not recommend accepting.
• Alternative Structure. Alternatively, propose that the placement agent fee be paid entirely by the GP or MPCA out of management fees received (rather than from fund assets), thereby eliminating any burden on BFO or the Fund. This alternative achieves the same economic result for BFO while potentially being more palatable to the GP from an optics standpoint.
IV. Additional Protective Provisions
In addition to the priority-ranked negotiation objectives set forth above, we recommend that the Side Letter include the following additional protective provisions, which are standard in scope and unlikely to generate significant GP resistance.
A. Confidentiality Carve-Outs
The LPA's confidentiality provisions require limited partners to maintain the confidentiality of fund information, including the terms of their subscription documents and side letters. We recommend that the Side Letter include carve-outs permitting BFO to disclose fund information (including the Side Letter itself and its terms) to the following categories of recipients without the prior written consent of the GP:
(i) BFO's legal advisors, including C&H and any successor counsel engaged by BFO;
(ii) BFO's tax advisors and accountants;
(iii) BFO's financial and investment advisors;
(iv) Members of the Hargrove family, including Julian R. Hargrove, his spouse, lineal descendants, and any trusts or entities established for the benefit of the foregoing;
(v) BFO's investment committee members and board of advisors (if any);
(vi) Applicable regulatory authorities, in connection with any examination, audit, inquiry, or proceeding; and
(vii) As required by applicable law, regulation, or legal process (including any subpoena, court order, or other compulsory process).
This is a standard market request for sophisticated family office investors. BFO must be free to share fund information with its professional advisors, family stakeholders, and regulators in the ordinary course of its business without the administrative burden and delay of seeking GP consent. We do not anticipate significant GP pushback on this provision.
B. Governing Law and Dispute Resolution
The Side Letter shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice-of-law or conflict-of-law provision or rule that would cause the application of the laws of any other jurisdiction. This is consistent with the governing law provision of the LPA.
Any dispute resolution mechanism set forth in the LPA (including any arbitration, mediation, or forum selection clause) shall apply to disputes arising under the Side Letter. C&H's LPA Review Memorandum dated February 2, 2024 includes a detailed analysis of the LPA's dispute resolution provisions, and we note no material concerns with their application to the Side Letter.
V. Negotiation Process and Timeline
Set forth below is our proposed timeline for the Side Letter negotiation process. This timeline is designed to ensure that the negotiation is completed well in advance of Fund IV's anticipated first close on April 30, 2024, allowing sufficient time for BFO investment committee consideration and approval.
C&H notes the following with respect to the negotiation process:
• C&H will prepare the subscription agreement markup and investor questionnaire in parallel with the Side Letter negotiation, so that all execution documents can be delivered to BFO's investment committee simultaneously.
• Execution of the Side Letter and subscription agreement requires BFO investment committee approval (3 of 4 members, with Julian R. Hargrove holding a veto right). Accordingly, C&H will ensure that the investment committee is kept apprised of the negotiation's progress and that any material developments or compromises are communicated promptly.
• C&H will maintain a running issues list and negotiation log to track the status of each Side Letter provision and the parties' respective positions.
VI. Summary of Proposed Terms
The following table summarizes BFO's proposed Side Letter terms, the expected GP position, and C&H's recommended fallback for each provision.
VII. Next Steps and Action Items
The following action items should be completed in connection with the Side Letter negotiation:
1. BFO Confirmation of Strategy (by end of day February 6, 2024). BFO to confirm alignment with the proposed negotiation strategy and priority ranking set forth in this memorandum. In particular, BFO should confirm that the priority ranking accurately reflects BFO's preferences and that the proposed fallback positions are acceptable. Any modifications to the strategy should be communicated to C&H promptly so that the initial term sheet can be finalized.
2. Transmittal of Initial Term Sheet (February 7, 2024). C&H (Theresa Kim) to finalize and transmit the initial side-letter term sheet to Ashford Crane & Hewitt LLP (Elaine C. Woodbury, Senior Associate, cc: Harrison K. Drummond, Partner) on February 7, 2024, or as soon as practicable following BFO's confirmation of strategy.
3. MFN Provision Comparison Matrix. Owen Fischer (Working Associate, C&H) to continue preparing the MFN Provision Comparison Matrix, which benchmarks BFO's proposed MFN provision against MFN provisions in comparable real estate fund side letters. This matrix will serve as an internal reference during negotiations and will be provided to BFO for informational purposes.
4. Subscription Agreement Markup and Investor Questionnaire. C&H to begin preparing a BFO-specific markup of the Fund IV subscription agreement and to draft the investor questionnaire for BFO. These documents will be prepared in parallel with the Side Letter negotiation and delivered to BFO for investment committee review at the same time as the substantially final Side Letter.
5. Excuse Rights Analysis Memorandum. C&H to prepare a separate Excuse Rights Analysis Memorandum analyzing the legal enforceability, market context, and drafting considerations for the proposed excuse provisions. This memorandum will address, among other things, the interaction between BFO's excuse rights and the Fund's investment limitations, the treatment of excused investments in the distribution waterfall, and the tax implications of excuse elections.
6. BFO Internal Materials. BFO to begin assembling the internal materials and documentation that will be needed for the investor questionnaire and subscription process, including the following:
• BFO's Employer Identification Number (EIN: 27-4831956);
• Identification of authorized signatory (Julian R. Hargrove, Managing Director & CIO);
• Accredited investor and qualified purchaser representations and supporting documentation;
• Anti-money laundering ("AML") and know-your-customer ("KYC") documentation, including certified copies of BFO's organizational documents, identification for beneficial owners, and such other information as may be required by the Fund's compliance procedures;
• W-9 (Request for Taxpayer Identification Number and Certification); and
• Any additional documentation or representations required by the subscription agreement or investor questionnaire.
C&H will provide BFO with a detailed checklist of required documentation upon receipt of the final form of subscription agreement and investor questionnaire from Ashford Crane.
VIII. Disclaimer
This memorandum constitutes a privileged and confidential attorney-client communication and is provided solely for the use of Briarwood Family Office LLC and its authorized representatives in connection with BFO's proposed commitment to Meridian Peak Capital Partners Fund IV, L.P. This memorandum is protected by the attorney-client privilege and the work product doctrine.
C&H's analysis and recommendations set forth herein are based on our review of the following documents, each of which was received from Ashford Crane & Hewitt LLP on behalf of the GP on January 26, 2024 (except where otherwise noted):
• Fund IV Amended and Restated Agreement of Limited Partnership, dated December 20, 2023;
• Fund IV Private Placement Memorandum, dated December 15, 2023;
• Form of Subscription Agreement (including Investor Questionnaire);
• Form of Side Letter; and
• Related organizational documents and term sheets provided by the GP.
Our analysis is also informed by market data, comparable fund terms, and publicly available information regarding MPCA and its prior funds, as well as our experience representing institutional and family office investors in comparable fund transactions.
This memorandum does not constitute investment advice. C&H is engaged to provide legal counsel in connection with the negotiation of the Side Letter and related subscription documents. BFO's investment decision with respect to Fund IV should be made in consultation with its own financial advisors, tax advisors, and other professionals, and should take into account BFO's overall investment objectives, risk tolerance, liquidity requirements, and portfolio construction considerations. C&H expresses no opinion as to the merits of the investment in Fund IV or the likelihood of achieving any particular investment return.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Pamela Cross Partner, Funds & Asset Management
By: ________
Theresa Kim Senior Associate, Funds & Asset Management