PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Elliot R. Briarwood, Sole Managing Member, Briarwood Family Office LLC Margaux Briarwood-Feldstein, Director of Investments, Briarwood Family Office LLC
FROM: Linda Osei, Partner, Calderwood & Harkness LLP Yuki Nakamura, Associate, Calderwood & Harkness LLP
DATE: March 27, 2025
RE: Analysis of Negotiated Wind-Down Terms and Distribution Economics — Greystone Realty Partners, L.P.
MATTER: Briarwood Family Office LLC v. Pinnacle Holdings Group LLC and Greystone Realty Partners, L.P., C.A. No. 2024-1187-MTZ (Del. Ch.)
This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of the named recipients and their authorized representatives. Any disclosure, distribution, or copying of this memorandum or its contents to any person not authorized to receive it is strictly prohibited. If you have received this memorandum in error, please contact Calderwood & Harkness LLP immediately.
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I. Executive Summary and Recommendation
The purpose of this memorandum is to provide Briarwood Family Office LLC ("Briarwood" or the "Client") with a comprehensive analysis of the binding Term Sheet executed on March 14, 2025 (the "Term Sheet"), and the draft Wind-Down Agreement currently under negotiation for the consensual dissolution and orderly wind-down of Greystone Realty Partners, L.P. (the "Partnership"). This memorandum addresses the economic terms of the proposed wind-down, the distribution waterfall mechanics, the protective mechanisms negotiated on Briarwood's behalf, and the principal risks and open items that remain to be resolved before execution of the definitive transaction documents.
By way of brief background, Briarwood, as the holder of a 55% limited partnership interest, and Pinnacle Holdings Group LLC ("Pinnacle"), as the holder of a 45% general partnership interest and manager of the Partnership, have been deadlocked since mid-2024 over a proposed $62 million refinancing of the Partnership's senior secured indebtedness and a related $8.2 million capital call issued by Pinnacle. The deadlock arose from the structural supermajority voting requirement in Section 5.02 of the Amended and Restated Agreement of Limited Partnership, dated June 14, 2018, as amended (the "LPA"), which requires the affirmative vote of partners holding at least 80% of total partnership interests for any "Major Decision." Because neither Briarwood (at 55%) nor Pinnacle (at 45%) can unilaterally satisfy the 80% threshold, neither party can compel the other to approve or reject a Major Decision, and the Partnership has been unable to take meaningful action on the refinancing, the capital call, or other significant matters for approximately nine months.
After unsuccessful mediation before the Honorable (Ret.) Patricia Navarro through Tidewater Dispute Resolution Services in the fall of 2024, Calderwood & Harkness LLP filed a Verified Petition for Judicial Dissolution in the Court of Chancery of the State of Delaware on December 2, 2024, invoking 6 Del. C. § 17-802. Vice Chancellor Marguerite T. Zimmerman ordered expedited proceedings, and by stipulation of the parties, Keymark Valuation Group LLC was appointed as an independent appraiser. Keymark's appraisal, delivered on February 22, 2025, valued the Partnership's seven-property mixed-use commercial real estate portfolio at an aggregate of $174 million. With the appraisal in hand, the parties engaged in arm's-length negotiations and executed the Term Sheet on March 14, 2025, setting forth the material terms of a consensual wind-down and dissolution.
Bottom Line. Based on our analysis, the negotiated wind-down delivers Briarwood an illustrative total distribution of approximately $57,718,650, consisting of the full return of Briarwood's $47,850,000 capital contribution plus a $9,868,650 share of residual proceeds, assuming all properties sell at their Keymark appraised values. The Wind-Down Agreement preserves Briarwood's economic interests through several important protective mechanisms, including a right-of-first-offer ("ROFO") floor requiring Pinnacle to pay no less than 97.5% of the Keymark appraised value for any property it elects to acquire, a reduction in Pinnacle's management fee from 3.5% to 2.0% of gross revenues during the wind-down period, the engagement of Meridian Capital Advisors LLC as an independent disposition broker, and a $1,500,000 escrow reserve held at Concord Title & Escrow Services, Inc. for contingent liabilities. Critically, the negotiated resolution eliminates the substantial expense, uncertainty, and timeline risk inherent in contested dissolution litigation.
Recommendation. We recommend that Briarwood execute the Wind-Down Agreement and all related transaction documents at the earliest practicable date. The negotiated outcome is, in our professional judgment, materially superior to the alternatives available through continued litigation, and the protective mechanisms negotiated on Briarwood's behalf adequately safeguard the Client's economic and strategic interests. The balance of this memorandum sets forth the detailed analysis supporting this recommendation.
II. Background and Procedural History
A. Formation and Structure of the Partnership
Greystone Realty Partners, L.P. was formed on June 14, 2018, as a Delaware limited partnership under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq. A Certificate of Limited Partnership was filed with the Delaware Secretary of State on the same date and assigned File No. 7284613. The Partnership's registered agent in Delaware is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801.
The Amended and Restated Agreement of Limited Partnership (the "LPA") was executed on June 14, 2018, contemporaneously with the filing of the Certificate of Limited Partnership. The LPA was subsequently amended by the First Amendment to the Amended and Restated Agreement of Limited Partnership, dated March 3, 2020, which increased the aggregate committed capital of the Partnership from $70 million to $87 million to facilitate the acquisition of additional properties and fund capital improvements across the portfolio.
The Partnership has two partners. Briarwood Family Office LLC is the sole limited partner, holding a 55% limited partnership interest and having made capital contributions totaling $47,850,000. Pinnacle Holdings Group LLC is the sole general partner, holding a 45% general partnership interest and having made capital contributions totaling $39,150,000. The aggregate capital contributions of both partners total $87,000,000, consistent with the committed capital as amended by the First Amendment.
The Partnership's investment portfolio consists of seven mixed-use commercial real estate properties located in four metropolitan areas across the Mid-Atlantic region: Philadelphia, Pennsylvania; Wilmington, Delaware; Baltimore, Maryland; and Arlington, Virginia. As discussed in greater detail in Section IV.D below, these properties were appraised by Keymark Valuation Group LLC at an aggregate value of $174,000,000 as of the date of the Keymark Appraisal Report, dated February 22, 2025.
The Partnership's senior secured indebtedness consists of a $68.3 million term loan originated by Harborline Commercial Lending, LLC on October 15, 2020, under a Credit Agreement bearing Loan Reference No. HCL-2020-07842. The term loan bears interest at a variable rate of SOFR plus 285 basis points and matures on October 15, 2027. As of February 28, 2025, the outstanding principal balance on the Harborline loan was approximately $61.7 million. The loan is secured by first-priority mortgages on all seven properties in the portfolio, cross-collateralized and cross-defaulted, with standard commercial real estate loan covenants including debt service coverage ratio requirements, restrictions on additional indebtedness, and requirements for lender consent to change of control, dissolution, or sale of collateral.
Under Section 4.03 of the LPA, Pinnacle serves as both the general partner and the day-to-day property manager of the Partnership and is entitled to a management fee of 3.5% of gross revenues generated by the portfolio properties. This management fee has been a source of ongoing concern for Briarwood, as discussed further below, and its reduction during the wind-down period constitutes one of the concessions negotiated in the Term Sheet.
B. The Deadlock
The roots of the current dispute lie in the structural governance provisions of the LPA, specifically Section 5.02, which defines the category of "Major Decisions" that require the affirmative vote of partners holding at least 80% of total partnership interests. Major Decisions include, among other things: (a) refinancings of partnership indebtedness in excess of $25 million; (b) capital calls in excess of $5 million; (c) sales of assets representing more than 20% of the aggregate portfolio value; (d) amendments to the LPA; (e) the admission of new partners; and (f) the voluntary dissolution of the Partnership. Because Briarwood holds 55% and Pinnacle holds 45%, neither partner alone can satisfy the 80% supermajority requirement. Any Major Decision therefore requires the mutual consent of both partners, a structure that functions effectively only so long as the partners are able to reach agreement on material matters.
The deadlock emerged in the summer of 2024 through the following sequence of events:
On June 28, 2024, Pinnacle delivered to Briarwood a written proposal for a $62 million cash-out refinancing of the Partnership's existing Harborline indebtedness. The proposed refinancing was to be provided by Northgate Savings Bank at a rate of SOFR plus 345 basis points — a spread 60 basis points above the existing Harborline loan — and would generate approximately $900,000 in excess proceeds after payoff of the Harborline loan. Pinnacle represented that the refinancing was necessary to lock in fixed-rate financing and to fund certain deferred maintenance obligations at two of the Philadelphia properties in the portfolio.
On July 15, 2024, Briarwood delivered written objections to the proposed refinancing. Briarwood's objections were grounded in three principal concerns: first, the unfavorable interest rate spread of 345 basis points versus the existing 285 basis points on the Harborline loan, which would increase annual debt service costs by approximately $370,000; second, the 3% prepayment penalty that would be triggered on the Harborline loan, calculated as approximately $1,851,000 (3% of the then-outstanding principal balance of approximately $61.7 million); and third, concerns about the impact of increased debt service on the Partnership's cash flow and ability to make distributions. Briarwood noted that the nominal $900,000 in excess proceeds was inadequate to justify the combination of a higher interest rate spread and a significant prepayment penalty.
On August 5, 2024, in response to Briarwood's refusal to consent to the refinancing, Pinnacle issued a capital call in the amount of $8.2 million, with Briarwood's pro rata share (55%) equal to $4,510,000 and Pinnacle's pro rata share (45%) equal to $3,690,000. Pinnacle stated that the capital call was necessary to fund deferred maintenance and tenant-improvement allowances at two Philadelphia properties — specifically, Station Square (1400 Chestnut Street) and Harborview Place (201 South Columbus Boulevard).
On August 22, 2024, Briarwood formally withheld consent to the capital call. Briarwood's position was that the $8.2 million capital call constituted a "Major Decision" under Section 5.02(d) of the LPA because it exceeded the $5 million threshold for capital calls requiring supermajority approval. Briarwood further asserted that Pinnacle could not unilaterally issue a capital call that required Briarwood's affirmative consent under the LPA and that the capital call was, in substance, an attempt to circumvent Briarwood's objections to the refinancing by forcing Briarwood to fund improvements through equity rather than debt.
From September through November 2024, the parties attempted to resolve the dispute through mediation administered by Tidewater Dispute Resolution Services, with the Honorable (Ret.) Patricia Navarro serving as mediator. The mediation was conducted over three sessions but ultimately proved unsuccessful, as Pinnacle insisted that the capital call was validly issued and that Briarwood's refusal to pay constituted a breach of the LPA, while Briarwood maintained that the capital call was a Major Decision requiring supermajority approval that had not been obtained. The parties were unable to bridge their fundamental disagreement on this threshold issue, and the mediation was terminated without resolution in late November 2024.
C. The Chancery Court Proceedings
On December 2, 2024, Calderwood & Harkness LLP, on behalf of Briarwood, filed a Verified Petition for Judicial Dissolution (the "Petition") in the Court of Chancery of the State of Delaware, invoking 6 Del. C. § 17-802. That section authorizes the Court of Chancery to decree the dissolution of a limited partnership "whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement." The Petition was captioned Briarwood Family Office LLC v. Pinnacle Holdings Group LLC and Greystone Realty Partners, L.P., and was assigned Civil Action No. 2024-1187-MTZ before Vice Chancellor Marguerite T. Zimmerman.
The Petition set forth the factual basis for the deadlock, detailed the failure of the mediation process, and argued that the structural supermajority requirement in the LPA, combined with the 55/45 ownership split, made it not reasonably practicable for the Partnership to carry on its business in conformity with the LPA. The Petition sought an order dissolving the Partnership and directing the winding up of its affairs, including the disposition of its assets and the distribution of proceeds to the partners in accordance with the LPA's distribution provisions.
Pinnacle, represented by Raymond T. Ashford of Ashford & Crane LLP, Wilmington, Delaware, filed a response to the Petition on December 16, 2024, opposing dissolution and arguing, among other things, that the deadlock was caused by Briarwood's unreasonable refusal to consent to the refinancing and capital call, and that alternatives short of dissolution — including a buy-sell mechanism or the appointment of a receiver — could remedy the impasse.
On December 18, 2024, Vice Chancellor Zimmerman held a scheduling conference at which she ordered expedited discovery, noting the risk of deterioration of the Partnership's assets and relationships during the pendency of the litigation. The expedited discovery schedule contemplated the completion of document discovery by January 31, 2025, depositions by February 28, 2025, and a trial date in the second quarter of 2025.
On January 10, 2025, the parties entered into a Stipulated Order, approved by Vice Chancellor Zimmerman, appointing Keymark Valuation Group LLC as an independent appraiser of the Partnership's real estate portfolio. The lead appraiser was Thomas J. Reeves, MAI, a designated member of the Appraisal Institute with over twenty-five years of experience in commercial real estate valuation in the Mid-Atlantic region. The Stipulated Order directed Keymark to deliver its appraisal report within forty-five days, covering all seven properties in the portfolio and applying accepted valuation methodologies including the income approach, the sales comparison approach, and the cost approach, as appropriate for each property.
On February 22, 2025, Keymark delivered its Appraisal Report, designated Report No. KVG-2025-0214, valuing the seven-property portfolio at an aggregate of $174,000,000, with individual property values ranging from $14,800,000 (Walnut Bridge, 3722 Walnut Street, Philadelphia) to $38,200,000 (Station Square, 1400 Chestnut Street, Philadelphia). A summary of the property-by-property appraised values is set forth in Section IV.D below and in Appendix A.
On March 7, 2025, Vice Chancellor Zimmerman held a court status conference at which counsel for both parties reported that settlement negotiations were ongoing and that the parties expected to reach an agreement. The Vice Chancellor expressed the Court's preference for a consensual resolution and encouraged the parties to continue their efforts while maintaining the existing litigation schedule as a backstop.
On March 14, 2025, following several days of intensive negotiations between Calderwood & Harkness and Ashford & Crane, the parties executed the binding Term Sheet for Consensual Wind-Down (the "Term Sheet"), which sets forth the material terms of the proposed dissolution and wind-down. The parties are currently negotiating the definitive Wind-Down Agreement and ancillary transaction documents, which are the subject of the analysis in this memorandum.
III. Comparison of Negotiated Outcome vs. Judicial Dissolution
A. Risks of Continued Litigation
While we believe that Briarwood's position in the Chancery Court proceeding is strong, continued litigation presents several meaningful risks that warrant careful consideration.
Legal Standard. Under 6 Del. C. § 17-802, a petitioner seeking judicial dissolution of a limited partnership must demonstrate that it is "not reasonably practicable to carry on the business in conformity with the partnership agreement." The Delaware Court of Chancery has interpreted this standard in a series of decisions, including In re Carlisle Etcetera LLC, 114 A.3d 592 (Del. Ch. 2015), and Haley v. Talcott, 864 A.2d 86 (Del. Ch. 2004), among others. The standard is met where the partnership's governance structure is hopelessly deadlocked such that the entity cannot function as intended by the partnership agreement. The structural deadlock in Greystone — where an 80% supermajority is required for Major Decisions but neither the 55% limited partner nor the 45% general partner can unilaterally reach that threshold — presents a strong case for dissolution. Nevertheless, the outcome is not guaranteed, and the Court retains broad discretion.
Alternative Remedies. Even where the Court finds a deadlock warranting intervention, Vice Chancellor Zimmerman could exercise her equitable discretion to impose remedies short of full dissolution, including the appointment of a receiver to manage the Partnership's affairs, the imposition of a forced buy-sell mechanism (akin to the "Texas shoot-out" or "Russian roulette" approaches sometimes employed in contractual buy-sell provisions), or other equitable relief tailored to the circumstances. Such alternative remedies might not align with Briarwood's preferred outcome of an orderly wind-down and liquidation of the portfolio.
Counterclaim Exposure. Pinnacle has signaled, through its responsive filings and through counsel's statements at the December 18, 2024 scheduling conference, that it may assert a counterclaim alleging that Briarwood's refusal to consent to the $8.2 million capital call constituted a breach of the implied covenant of good faith and fair dealing. Under Delaware law, the implied covenant operates to fill gaps in the parties' agreement and to prohibit conduct that, while not expressly prohibited, is inconsistent with the spirit of the bargain. See Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441 (Del. 2005); Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400, 418 (Del. 2013). While we believe that Briarwood has strong defenses to such a claim — principally, that the LPA expressly classifies the capital call as a Major Decision requiring 80% approval, and that Briarwood's withholding of consent was an exercise of an express contractual right rather than a gap-filling scenario — the assertion of such a counterclaim would add complexity, cost, and uncertainty to the litigation.
Timeline and Cost. Even on the expedited track ordered by Vice Chancellor Zimmerman, a contested trial is unlikely to be completed before the third or fourth quarter of 2025, and post-trial briefing and the issuance of a decision could extend the resolution into early 2026. During this period, the Partnership would continue to operate under deadlocked governance, with the attendant risks of asset deterioration, tenant attrition, and management distraction. We estimate that Briarwood's additional legal costs to bring the matter through trial and post-trial proceedings would range from approximately $1.5 million to $2.5 million, depending on the scope of discovery disputes, the number of depositions required, the use of expert witnesses, and the complexity of post-trial proceedings.
Reputational and Market Risks. Continued litigation in a public forum carries the risk of adverse publicity that could affect the market value of the Partnership's properties and the willingness of tenants, lenders, and prospective purchasers to transact with the Partnership. Commercial tenants, in particular, may be reluctant to enter into new leases or renew existing leases in a property owned by an entity whose partners are engaged in contentious dissolution litigation in the Court of Chancery.
Precedential Risk. A contested ruling by Vice Chancellor Zimmerman on the application of 6 Del. C. § 17-802 to the specific facts of the Greystone deadlock could establish precedent — favorable or unfavorable — that may affect Briarwood's other investment structures that employ similar supermajority governance provisions. A negotiated resolution avoids this risk entirely.
B. Advantages of the Negotiated Wind-Down
The negotiated wind-down offers several significant advantages over continued litigation.
Certainty of Outcome. The Term Sheet and the forthcoming Wind-Down Agreement establish an agreed-upon framework for the dissolution and orderly disposition of all seven properties. Both partners have committed to cooperate in the marketing and sale process, eliminating the risk that one party obstructs or delays the process. The distribution waterfall is defined by agreement, removing the uncertainty inherent in a court-imposed liquidation regime.
Timeline Control. The Wind-Down Agreement targets the filing of the Certificate of Cancellation with the Delaware Secretary of State by December 31, 2025. Marketing of the properties is to commence within thirty days of execution of the Wind-Down Agreement, which — assuming execution in early to mid-April 2025 — would initiate the disposition process by approximately mid-May 2025. This timeline is materially faster than the probable conclusion of contested litigation, which as noted above could extend into 2026.
Economic Superiority. As detailed in Section IV below, Briarwood's illustrative total distribution under the Wind-Down Agreement is approximately $57,718,650, assuming aggregate property sales at the Keymark appraised values. This figure represents the return of Briarwood's full $47,850,000 capital contribution plus a $9,868,650 share of residual proceeds. By contrast, a litigated outcome is uncertain and would be reduced by the additional $1.5 to $2.5 million in legal costs estimated above, yielding a net economic outcome that is likely inferior to the negotiated resolution in most scenarios.
Preservation of Portfolio Value. The engagement of Meridian Capital Advisors LLC ("Meridian") as an independent disposition broker ensures a professional, market-driven marketing and sale process. Meridian's Nadia Kowalski, who will lead the engagement, has extensive experience in Mid-Atlantic commercial real estate dispositions. An orderly, broker-led marketing process is materially preferable to a court-ordered liquidation, which could depress sale prices due to the perception of distress and the loss of control over timing and process.
Mutual Release. The Wind-Down Agreement contemplates the execution of a Mutual Release Agreement (to be annexed as Exhibit A) under which both parties release all claims against each other arising out of or related to the Partnership, the LPA, and the events giving rise to the litigation. This eliminates ongoing liability exposure and the risk of post-dissolution claims between the partners.
Avoidance of Precedent. As noted above, the consensual resolution avoids the creation of a precedential ruling that could affect Briarwood's other investment structures.
C. Assessment
On balance, we conclude that the negotiated resolution is materially superior to continued litigation for both Briarwood's economic interests and its broader strategic objectives. The certainty of outcome, the favorable distribution economics, the timeline advantages, and the elimination of litigation risk and cost all strongly favor execution of the Wind-Down Agreement. While the negotiated terms involve certain concessions — most notably, the ROFO granted to Pinnacle and the acceptance of a $1,500,000 escrow reserve that is at the low end of customary ranges — these concessions are reasonable in the context of a consensual resolution and are adequately mitigated by the protective mechanisms discussed in Sections V, VI, and VIII below.
IV. Distribution Waterfall Analysis
A. Structure of the Waterfall
The distribution waterfall set forth in the Term Sheet and the draft Wind-Down Agreement establishes a five-tier priority structure for the allocation of gross proceeds from the disposition of the Partnership's properties. Each tier must be satisfied in full before any amounts are distributed at the next tier. The waterfall is structured as follows:
Priority 1: Repayment of Harborline Commercial Lending Indebtedness. All outstanding amounts owed under the Credit Agreement with Harborline Commercial Lending, LLC (Loan Ref. No. HCL-2020-07842) must be repaid in full. Based on current amortization schedules and accrued interest calculations, the estimated total payoff as of June 30, 2025 — which we use as a reference date based on the anticipated timing of initial property closings — is as follows:
• Outstanding principal: $60,900,000
• Accrued interest (estimated through June 30, 2025): $730,000
• Prepayment premium (3% of outstanding principal): $1,827,000
• Total estimated Harborline payoff: $63,457,000
We note that the actual payoff amount will vary depending on the dates on which individual properties close and the corresponding principal balance and accrued interest at each closing date. The 3% prepayment premium is triggered by any repayment of principal prior to the scheduled maturity date of October 15, 2027, and applies to the principal amount being repaid. Because the Harborline loan is cross-collateralized across all seven properties, Harborline will likely require that payoff occur on or before the closing of the final property sale, or that partial releases be negotiated on a property-by-property basis. The mechanics of partial releases are addressed in the consent request letter being prepared for Harborline.
Priority 2: Payment of Wind-Down Expenses. Transaction and wind-down expenses are to be paid from sale proceeds, including legal fees payable to Calderwood & Harkness LLP and Ashford & Crane LLP, brokerage commissions payable to Meridian Capital Advisors LLC at a rate of 1.75% per property (subject to the discussion of ROFO sales in Section V below), accounting fees payable to Fieldstone Accounting Partners LLP, and title and escrow fees payable to Concord Title & Escrow Services, Inc. The aggregate estimated wind-down expenses are $4,100,000. A detailed breakdown of the estimated wind-down expense budget is being prepared and will be annexed to the Wind-Down Agreement as an exhibit.
Priority 3: Escrow Reserve. A reserve of $1,500,000 will be deposited into escrow at Concord Title & Escrow Services, Inc. (Escrow Officer: Brian L. Whitfield; Account No. ESC-2025-40071). This reserve will be held for twelve months following the dissolution of the Partnership to cover contingent liabilities, as discussed in Section VIII below. The escrow reserve is funded from sale proceeds after the Harborline payoff and wind-down expenses, but before any return of capital to the partners.
Priority 4: Return of Unreturned Capital Contributions. After satisfaction of the first three tiers, the partners receive a return of their unreturned capital contributions in the following amounts:
• Briarwood Family Office LLC: $47,850,000
• Pinnacle Holdings Group LLC: $39,150,000
• Total return of capital: $87,000,000
These amounts represent the aggregate capital contributions made by each partner over the life of the Partnership. For purposes of this analysis, we assume that neither partner has received any return of capital to date, consistent with our understanding that all prior distributions have been characterized as distributions of operating income rather than returns of capital.
Priority 5: Distribution of Residual Proceeds. Any remaining proceeds after satisfaction of Priorities 1 through 4 are distributed to the partners in proportion to their respective partnership interests — 55% to Briarwood and 45% to Pinnacle. This allocation is consistent with the LPA's general distribution provisions and was expressly confirmed in the Term Sheet.
B. Illustrative Calculations (Assuming Aggregate Sales at Appraised Value of $174,000,000)
The following table presents the illustrative distribution waterfall assuming that all seven properties are sold at their aggregate Keymark appraised value of $174,000,000:
The total distributions to each partner under this illustrative scenario are as follows:
Briarwood's illustrative total distribution of $57,718,650 represents a return of its full capital contribution plus a premium of approximately 20.6% on contributed capital (calculated as $9,868,650 ÷ $47,850,000), exclusive of any prior distributions of operating income received during the Partnership's operations. We note that this return-on-capital figure is illustrative and does not account for the time value of money, prior distributions, or the tax consequences of gain recognition, all of which affect the true economic return. A more comprehensive after-tax analysis should be prepared in consultation with Briarwood's personal tax advisors and Fieldstone Accounting Partners.
C. Sensitivity Analysis
Because the residual tier of the distribution waterfall is the most variable component and is directly affected by the aggregate sale prices achieved for the portfolio properties, we have prepared the following sensitivity analysis to illustrate the impact of variations in aggregate sale prices on Briarwood's total distribution.
Scenario 1: Aggregate Sales at 95% of Appraised Value ($165,300,000)
Under this scenario, Briarwood still receives a full return of capital plus a residual share of approximately $5.08 million, for a total distribution of approximately $52.93 million — a premium of approximately 10.6% on contributed capital.
Scenario 2: Aggregate Sales at 90% of Appraised Value ($156,600,000)
Under this scenario, the residual is compressed to approximately $543,000, of which Briarwood receives approximately $298,650. Briarwood's total distribution of approximately $48.15 million still exceeds its capital contribution, but the premium above capital return is minimal. This scenario illustrates that a 10% decline in aggregate sale prices from the Keymark appraised values would substantially erode the residual but would not impair the return of Briarwood's capital.
Scenario 3: Aggregate Sales at 105% of Appraised Value ($182,700,000)
Under this upside scenario, Briarwood's total distribution increases to approximately $62.50 million, representing a premium of approximately 30.6% on contributed capital.
Breakeven Analysis. The breakeven sale price — that is, the aggregate gross proceeds at which Briarwood's capital contribution of $47,850,000 is returned in full through the waterfall — can be calculated by solving for the gross proceeds amount that yields net distributable proceeds of exactly $47,850,000 (i.e., sufficient to return only Briarwood's capital, with no residual):
Gross proceeds = Harborline payoff + Wind-down expenses + Escrow reserve + Briarwood capital return
Gross proceeds = $63,457,000 + $4,100,000 + $1,500,000 + $47,850,000 = $116,907,000
However, this calculation does not account for the fact that Priority 4 also requires the return of Pinnacle's capital of $39,150,000. If both partners' capital is to be returned in full, the required gross proceeds would be:
Gross proceeds = $63,457,000 + $4,100,000 + $1,500,000 + $87,000,000 = $156,057,000
This breakeven amount of approximately $156.1 million represents approximately 89.7% of the Keymark appraised value of $174 million. Put differently, the portfolio would need to sell at approximately a 10.3% discount to the Keymark appraisal before the return of either partner's capital would be impaired. We consider this margin of safety to be adequate, though not overwhelming, and it underscores the importance of achieving orderly, market-rate dispositions rather than distressed sales.
It is important to note that the distribution waterfall prioritizes the Harborline payoff and wind-down expenses, both of which are relatively fixed and insensitive to the aggregate sale price. The variability in outcomes flows principally to the residual tier (Priority 5), which affects both partners proportionally in accordance with their 55/45 split. This structure ensures that Briarwood's return of capital is protected except in scenarios involving significant declines in aggregate sale prices well below the Keymark appraised values.
D. Property-by-Property Appraised Values (Reference)
The following table summarizes the Keymark Appraisal Report property-by-property values. A detailed summary of the appraisal methodology and key assumptions is set forth in Appendix A.
Source: Keymark Valuation Group LLC, Appraisal Report No. KVG-2025-0214, dated February 22, 2025. Lead Appraiser: Thomas J. Reeves, MAI.
We note that Station Square, the largest single asset in the portfolio at $38.2 million (approximately 22% of total portfolio value), represents a concentration risk. The success or failure of the disposition of Station Square alone will have a meaningful impact on the aggregate proceeds and, consequently, on the residual available for distribution at Priority 5. We recommend that Briarwood and Meridian give particular attention to the marketing strategy and pricing of Station Square.
V. Assessment of Pinnacle's Right of First Offer (ROFO)
A. ROFO Mechanics
Under the Wind-Down Agreement, Pinnacle is granted a right of first offer on each property in the portfolio. The ROFO operates as follows:
1. Meridian markets the property and solicits offers from third-party purchasers in the ordinary course.
2. Upon receipt of a bona fide third-party offer for a property, the Partnership (acting through a wind-down committee or designated representative) delivers written notice to Pinnacle setting forth the material terms of the third-party offer, including the proposed purchase price, closing timeline, and any material conditions.
3. Pinnacle has twenty (20) business days from receipt of such notice to elect to acquire the subject property by delivering a written exercise notice to the Partnership.
4. If Pinnacle exercises the ROFO, Pinnacle must acquire the property at a price that is no less than 97.5% of the Keymark appraised value for the subject property, regardless of the price offered by the third-party purchaser.
5. If Pinnacle declines to exercise the ROFO or fails to deliver an exercise notice within the twenty-business-day period, the Partnership is free to consummate the sale to the third-party purchaser at the offered price.
6. The ROFO is on a per-property basis, not portfolio-wide. Pinnacle may exercise the ROFO with respect to any one or more properties without being obligated to exercise it as to all properties. In other words, Pinnacle may selectively acquire individual properties.
B. Analysis of the 97.5% Floor
The 97.5% floor is the critical protective mechanism in the ROFO structure. It establishes a minimum price at which Pinnacle can acquire any property, indexed to the Keymark appraisal rather than to the third-party offer price. This is significant because, in a standard ROFO or right of first refusal structure, the exercise price is typically the price offered by the third party. Here, the floor is set at 97.5% of the independently appraised value, which means Pinnacle cannot exercise the ROFO at a price below the floor even if a third-party offer comes in at a lower level.
To illustrate the operation of the floor, consider Station Square, appraised at $38,200,000. The ROFO floor for Station Square is:
97.5% × $38,200,000 = $37,245,000
This means Pinnacle could acquire Station Square for no less than $37,245,000 — a maximum discount of $955,000 (2.5%) from the appraised value. If a third-party purchaser offers $39,000,000 for Station Square, Pinnacle would still only be required to pay $37,245,000 to exercise the ROFO (not $39,000,000). In this scenario, the ROFO exercise would result in $1,755,000 less than the third-party offer. However, if a third-party purchaser offers $36,000,000 (below the floor), Pinnacle would still be required to pay at least $37,245,000, which would actually exceed the third-party offer.
We have assessed the 97.5% floor and believe it provides adequate price protection for Briarwood for the following reasons:
First, the 2.5% discount from appraised value is within a reasonable range and is less than the 1.75% brokerage commission that Meridian would earn on a third-party sale. In a scenario where Pinnacle exercises the ROFO, the Meridian commission may not be payable (or may be reduced), which partially or fully offsets the discount to appraised value. The net economic impact to the Partnership — and thus to Briarwood — of a ROFO exercise at 97.5% of appraised value may therefore be neutral or even slightly positive compared to a third-party sale at 100% of appraised value after deducting the Meridian commission.
Second, the floor is indexed to the Keymark appraisal, which was prepared by an independent, court-appointed appraiser using accepted methodologies. The appraisal thus provides an objective, defensible benchmark for value. Because the appraisal was prepared at the direction of the Court and accepted by both parties as the basis for settlement, it carries significant weight and credibility.
Third, the per-property structure of the ROFO, while it does permit Pinnacle to cherry-pick individual properties, does not allow Pinnacle to acquire the entire portfolio at a bulk discount. Each property must be evaluated independently, and Pinnacle must pay at least the floor price for each property it elects to acquire.
The principal risk to Briarwood from the ROFO is that Pinnacle may selectively exercise the ROFO on properties that Pinnacle believes are undervalued by the Keymark appraisal or that have the highest upside potential. In such cases, Pinnacle would acquire these properties at a modest discount to a value that Pinnacle believes understates the property's true worth. However, this risk is inherent in any ROFO structure and is substantially mitigated by the 97.5% floor. We also note that if Pinnacle exercises the ROFO on a significant number of properties, it accelerates the wind-down timeline (because fewer properties need to be marketed and sold to third parties), which reduces carrying costs and mitigates the market risk discussed in Section VII.
The twenty-business-day exercise period is approximately one calendar month, which introduces a timing delay in the sale process for each property subject to a ROFO exercise notice. In a portfolio disposition, this delay is manageable and is a reasonable accommodation in the context of the consensual resolution.
C. Recommendation
We consider the ROFO to be an acceptable concession in the context of the overall negotiated resolution. The 97.5% floor tied to the Keymark appraisal provides adequate price protection for Briarwood. We recommend that Briarwood ensure that the Meridian engagement letter (Ref. MCA-GRP-2025-001) expressly addresses the treatment of brokerage commissions on ROFO sales, including whether the commission is reduced or eliminated if Pinnacle is the purchaser, and that any commission savings on ROFO sales are captured as a benefit to the Partnership (and thus shared by both partners through the waterfall) rather than being retained solely by Pinnacle.
VI. Impact of Reduced Management Fee
A. Comparison of Fee Rates
Under Section 4.03 of the LPA, Pinnacle is entitled to a management fee of 3.5% of gross revenues generated by the Partnership's portfolio properties in consideration of its services as the day-to-day property manager. The Wind-Down Agreement and the accompanying Side Letter reduce Pinnacle's management fee to 2.0% of gross revenues for the duration of the wind-down period.
The fee reduction is summarized as follows:
The reduced rate of 2.0% takes effect upon execution of the Wind-Down Agreement and continues until the earlier of (a) the disposition of all properties in the portfolio or (b) the filing of the Certificate of Cancellation with the Delaware Secretary of State. During this period, Pinnacle will continue to provide property management services — including tenant relations, maintenance oversight, rent collection, vendor management, and compliance with governmental regulations — but its scope of responsibilities will diminish progressively as properties are sold and removed from the portfolio. The Side Letter provides for monthly invoicing and payment of the management fee from the Partnership's operating accounts.
B. Economic Impact
To assess the economic impact of the fee reduction, we must estimate the Partnership's gross revenues during the wind-down period. The Partnership's estimated 2024 annual net operating income ("NOI") was approximately $13,920,000. Because the management fee is calculated on gross revenues rather than NOI, and because gross revenues include all rental income, tenant reimbursements, and other operating income before the deduction of operating expenses (but after exclusion of capital proceeds), the gross revenue figure is higher than NOI. Based on the portfolio's operating expense ratios and historical financial statements, we estimate gross revenues of approximately $20,000,000 to $22,000,000 per annum.
Using these estimates, the annual fee savings are as follows:
The wind-down period is expected to last approximately nine to twelve months from execution of the Wind-Down Agreement, though gross revenues will decline as properties are sold and removed from the portfolio over the course of that period. Taking into account the declining revenue base as dispositions occur, we estimate total fee savings to the Partnership during the wind-down period of approximately $225,000 to $330,000.
These savings flow through the distribution waterfall. As incremental proceeds available for distribution, they ultimately benefit both partners in proportion to their interests. Briarwood's share (55%) of the estimated savings is approximately $123,750 to $181,500. While this amount is not large relative to the overall transaction economics, it represents a meaningful reduction in the ongoing cash outflow from the Partnership during the wind-down period and a tangible economic concession by Pinnacle.
C. Assessment
The reduced management fee is a meaningful and appropriate concession by Pinnacle. It reflects the reality that Pinnacle's management responsibilities during the wind-down period will be materially reduced compared to the active asset-management mandate contemplated by the LPA. As properties are sold, Pinnacle's operational burden will diminish, and a management fee calibrated to a full-service property management engagement becomes increasingly inappropriate. The 2.0% rate aligns Pinnacle's compensation more closely with a caretaker and wind-down role.
Additionally, the fee reduction serves an alignment-of-interest function: by reducing Pinnacle's ongoing fee income from portfolio operations, the reduction diminishes any incentive Pinnacle might have to delay the disposition process in order to continue earning management fees. While we do not believe Pinnacle would deliberately obstruct the wind-down, the fee reduction ensures that Pinnacle's economic incentives are aligned with a prompt and efficient disposition of the portfolio.
We consider the fee reduction to be a fair and adequate term of the negotiated resolution.
VII. Risks of Property Value Depreciation During Wind-Down
A. Market Risk
The wind-down period, targeting completion by December 31, 2025, exposes the Partnership to fluctuations in the Mid-Atlantic commercial real estate market. While the anticipated disposition period of approximately nine to twelve months is relatively short, it is not immune to adverse market developments.
The current market environment for mixed-use commercial real estate in the Mid-Atlantic region is characterized by several crosscurrents. On the positive side, the Federal Reserve's interest rate trajectory has stabilized following the rate reductions in the second half of 2024, and capital markets for commercial real estate transactions have shown signs of improved liquidity in early 2025. Capitalization rates for well-leased mixed-use and multifamily assets in core markets such as Philadelphia, Arlington, and Baltimore have remained relatively stable.
On the negative side, the office and office-heavy mixed-use sectors continue to face headwinds from the persistence of remote and hybrid work arrangements, which have reduced tenant demand for traditional office space in many markets. Vacancy rates in certain office-heavy submarkets remain elevated relative to pre-pandemic levels. These headwinds are particularly relevant for two properties in the portfolio:
• Courthouse Plaza (2100 Clarendon Blvd, Arlington, VA; appraised at $24,400,000): Arlington's Rosslyn-Ballston corridor has experienced elevated office vacancy rates, though the Clarendon submarket has benefited from residential and mixed-use demand. The property's mixed-use profile provides some insulation, but the office component remains vulnerable to submarket trends.
• Riverside Centre (515 N. Charles Street, Baltimore, MD; appraised at $26,500,000): Downtown Baltimore has faced persistent challenges in its commercial office market, with several large tenants downsizing or relocating in recent years. The extent of office exposure at Riverside Centre will significantly affect its marketability and achievable sale price.
In addition, macroeconomic risks — including the potential for a recession, geopolitical disruptions, or unexpected changes in monetary policy — could affect buyer demand, financing availability, and pricing for commercial real estate transactions during the wind-down period. These risks are inherently difficult to predict or quantify but represent background risks that apply to the entire portfolio.
B. Property-Specific Risks
Beyond general market conditions, several property-specific risks warrant attention:
Walnut Bridge (3722 Walnut Street, Philadelphia, PA; appraised at $14,800,000): This property has a student housing and ground-floor retail profile, located in the University City submarket of West Philadelphia. Student housing assets have a pronounced seasonal demand cycle, with the strongest leasing activity occurring in the spring and summer months prior to the fall semester. If the disposition of Walnut Bridge is timed during an off-season period (e.g., late fall or winter), it may attract fewer buyers or achieve a lower price. The marketing strategy should account for this seasonality.
Station Square (1400 Chestnut Street, Philadelphia, PA; appraised at $38,200,000): As the largest single asset in the portfolio, representing approximately 22% of total portfolio value, Station Square's sale outcome has an outsized impact on aggregate proceeds and residual distributions. A failure to achieve the appraised value on this property alone — whether due to market conditions, property-specific issues, or a thin buyer pool — could materially compress the residual available for distribution at Priority 5. Conversely, an above-appraisal sale of Station Square would provide meaningful upside.
Deferred Maintenance at Philadelphia Properties: As discussed in Section II.B above, the disputed $8.2 million capital call was intended to fund deferred maintenance and tenant-improvement allowances at Station Square and Harborview Place. The deadlock has prevented the Partnership from undertaking these improvements. Properties with deferred maintenance may achieve lower sale prices if buyers discount for the cost of required repairs and capital improvements. The Wind-Down Agreement should address the funding mechanism for essential repairs that may be necessary to preserve or maximize sale values prior to disposition. We recommend that Meridian, in consultation with the wind-down committee, assess which repairs are economically justified (i.e., where the expected increase in sale price exceeds the cost of the repair) and that a mechanism be established in the Wind-Down Agreement to authorize expenditures for such repairs from partnership operating funds.
C. Mitigation Factors
Several factors mitigate the risk of property value depreciation during the wind-down period:
Recent Appraisal. The Keymark appraisal is dated February 22, 2025, and reflects current market conditions as of that date. Because the appraisal is recent, there is limited risk of a significant gap between the appraised values and current market realities. The appraisal incorporates the market headwinds discussed above and thus already accounts, to some degree, for the challenges facing the office and mixed-use sectors.
Experienced Disposition Broker. Meridian Capital Advisors LLC is a well-regarded commercial real estate advisory firm with extensive experience in Mid-Atlantic markets. Nadia Kowalski, who will lead the engagement, has significant transaction experience in the Philadelphia, Wilmington, Baltimore, and Northern Virginia markets. An experienced broker adds value through market knowledge, buyer relationships, and the ability to create competitive tension among prospective purchasers.
Prompt Marketing. The Wind-Down Agreement requires marketing to commence within thirty days of execution. Prompt initiation of the disposition process minimizes the holding period and reduces exposure to adverse market movements.
Harborline Loan Maturity. The Harborline term loan does not mature until October 15, 2027, which provides the Partnership with a comfortable runway. There is no near-term debt maturity pressure that could force the Partnership into fire-sale dispositions. If market conditions deteriorate and sales take longer than anticipated, the Partnership has the financial flexibility to continue operating the properties and servicing its debt while awaiting more favorable market conditions — though this would extend the wind-down timeline beyond the December 31, 2025 target.
ROFO as Backstop. Pinnacle's ROFO provides a potential backstop buyer for properties that do not attract strong third-party interest. While ROFO sales at the 97.5% floor represent a modest discount to appraised value, they may be preferable to extended marketing periods or sales at deeper discounts to unrelated third parties.
D. Assessment
Property value depreciation during the wind-down period is the primary economic risk to Briarwood under the negotiated resolution. However, this risk is time-limited by the anticipated nine-to-twelve-month disposition period, mitigated by the factors discussed above, and manageable in the context of the overall transaction economics. As demonstrated in the sensitivity analysis in Section IV.C, Briarwood's capital return is protected unless aggregate sale prices decline by more than approximately 10% from the Keymark appraised values — a threshold we consider unlikely but not impossible.
Extended delays beyond the December 31, 2025 target dissolution date would increase Briarwood's exposure to market risk. We recommend that Briarwood monitor the disposition progress closely and consider whether to invoke any acceleration or remedy provisions in the Wind-Down Agreement if Pinnacle or Meridian fails to prosecute the marketing and sale process with reasonable diligence.
VIII. Adequacy of Escrow Reserve for Contingent Liabilities
A. Structure of the Escrow
The Wind-Down Agreement provides for a $1,500,000 escrow reserve to be deposited with Concord Title & Escrow Services, Inc. The escrow is structured as follows:
• Escrow Agent: Concord Title & Escrow Services, Inc.
• Escrow Officer: Brian L. Whitfield
• Account No.: ESC-2025-40071
• Amount: $1,500,000
• Source of Funding: Sale proceeds, funded at Priority 3 in the distribution waterfall (after Harborline payoff and wind-down expenses, before return of capital)
• Holding Period: Twelve (12) months following the filing of the Certificate of Cancellation with the Delaware Secretary of State
• Release: At the expiration of the twelve-month holding period, the undisbursed balance of the escrow (less any amounts disbursed for resolved claims or reserved for pending claims) will be released to the partners in proportion to their 55/45 interests
• Disbursement Standard: Disbursements from escrow for the payment of contingent liabilities require the joint written authorization of Briarwood and Pinnacle, or, in the event of disagreement, a determination by the escrow agent in accordance with the dispute resolution provisions of the Escrow Agreement
B. Types of Contingent Liabilities
The escrow reserve is intended to cover contingent liabilities that may arise after the dissolution of the Partnership and the disposition of the portfolio properties. The principal categories of contingent liabilities include:
Environmental Liabilities. The portfolio comprises seven commercial properties across four jurisdictions (Pennsylvania, Delaware, Maryland, and Virginia). Each of these jurisdictions has its own environmental regulatory framework, and each property may have varying degrees of environmental exposure depending on its history, location, and physical characteristics. Environmental liabilities could arise from the discovery of hazardous substances, contamination, or other environmental conditions at or near any of the properties that were not identified or fully addressed prior to sale.
Tenant Disputes. Post-sale disputes with tenants could arise from lease adjustment claims, security deposit disputes, contested common area maintenance reconciliations, or other tenant-related matters. While the purchasers of the properties will typically assume responsibility for ongoing tenant relationships, the Partnership could face claims relating to pre-closing lease obligations or representations made to tenants during the marketing and sale process.
Tax Liabilities. Federal, state, and local tax liabilities or adjustments identified after the filing of the Partnership's final tax returns by Fieldstone Accounting Partners LLP could result in additional tax obligations. These could include audit adjustments, reassessments of transfer taxes, or corrections to the allocation of income and deductions among the partners.
Contractor and Vendor Claims. The two Philadelphia properties with deferred maintenance (Station Square and Harborview Place) may have outstanding obligations to contractors or vendors related to prior repair or improvement work. To the extent that any such obligations are disputed or unpaid at the time of dissolution, they could constitute contingent liabilities of the Partnership.
Transfer Tax Disputes and Title Claims. Real estate transfer taxes in each of the four jurisdictions are calculated based on the consideration paid for the property and, in some cases, on the assessed value. Disputes over the calculation of transfer taxes or post-closing title claims not covered by title insurance could arise.
C. Sufficiency Analysis
The $1,500,000 escrow reserve represents approximately 0.86% of the $174,000,000 aggregate portfolio value. In customary commercial real estate dispositions, holdback or escrow reserves for post-closing contingencies typically range from 1% to 3% of transaction value, with the specific amount varying based on the nature and condition of the assets, the scope of the seller's representations and warranties, and the buyer's negotiating leverage. By this benchmark, the $1,500,000 reserve is at the low end of the customary range.
However, several factors reduce the quantum of risk and support the adequacy of the reserve at this level:
First, the properties are being sold, not retained by the partners. Upon the consummation of each sale, the environmental, structural, and operational risks associated with the sold property transfer to the buyer, subject to the representations, warranties, and indemnification provisions in the applicable purchase and sale agreement. To the extent that the purchase and sale agreements include robust seller representations and limited survival periods (as is typical in commercial real estate transactions), the Partnership's post-closing exposure should be circumscribed.
Second, title insurance obtained through Concord Title & Escrow Services in connection with each sale will cover most title-related claims, including defects in title, encumbrances, and boundary disputes. Title insurance provides an independent source of recovery for title claims that does not depend on the escrow reserve.
Third, the Partnership's financial statements have been maintained and audited by Fieldstone Accounting Partners LLP throughout the Partnership's existence, which reduces (though does not eliminate) the risk of material tax surprises or adjustments upon the filing of the final partnership return.
Fourth, the twelve-month holding period is consistent with market practice and provides a reasonable period for the identification and resolution of post-closing claims.
The principal risk is that a material claim — such as a significant environmental remediation obligation or a structural defect requiring major capital expenditure — could arise in excess of $1,500,000. In such a scenario, both partners would bear exposure beyond the escrow reserve. The Mutual Release Agreement releases inter-partner claims but does not shield the partners from third-party claims, which could be asserted against the Partnership, its former partners, or its successor entities.
Recommendation. We believe the $1,500,000 escrow reserve is adequate for ordinary post-closing contingencies, including routine tenant disputes, minor tax adjustments, and small contractor claims. However, for significant environmental or structural risks, additional protective measures should be considered. Specifically:
1. Environmental Assessments. We recommend that Phase I Environmental Site Assessments be obtained (or updated, if existing assessments are stale) for each property prior to sale. If any Phase I assessment identifies a recognized environmental condition, a Phase II Environmental Site Assessment should be conducted to quantify the scope and cost of any required remediation. Properties with known environmental issues should be priced accordingly, and the purchase and sale agreements for such properties should include appropriate environmental indemnification from the buy