MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
To: Angela Fontaine, Partner, Real Estate, Calderwood & Harkness LLP
From: Grace Nakamura, Associate, Real Estate, Calderwood & Harkness LLP
Date: March 20, 2026
Re: Insurance Coverage Review — 450 West 34th Street, New York, NY 10001 (Block 754, Lot 42, Borough of Manhattan)
Matter No.: 1026-00003
Client: Briarwood Family Office LLC
Status: Privileged and Confidential — Attorney Work Product
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I. EXECUTIVE SUMMARY
This memorandum sets forth the results of our review of the existing insurance program currently maintained by Meridian Gateway Holdings LLC ("Seller" or "Meridian") on the mixed-use commercial property located at 450 West 34th Street, New York, New York 10001 (the "Property"), in connection with the prospective acquisition of the Property by our client, Briarwood Family Office LLC ("Briarwood" or "BFO"), for a purchase price of One Hundred Twenty Million Dollars ($120,000,000).
This review has been conducted in coordination with Lockhart & Pryor Insurance Advisors LLC ("Lockhart & Pryor"), the buyer's insurance broker, whose principal contact for this engagement is Nadia Kowalski, located at 100 William Street, Suite 600, New York, New York 10038. Lockhart & Pryor has provided a preliminary coverage benchmarking analysis and replacement cost estimate for the Property, which forms the basis for several of the recommendations contained herein. Lockhart & Pryor's analysis was delivered to our office on March 14, 2026, and is referenced extensively throughout this memorandum.
Based on Seller's most recent operating statement provided in the due diligence materials, the current annual insurance cost for the Property is approximately $312,000, which amount is included within the Property's total reported operating expenses of $3,836,000 for the trailing twelve-month period.
Summary of Findings: The existing insurance program maintained by Meridian appears to be generally adequate for the Seller's current operations as a privately held owner-operator. However, the existing program will require significant adjustments following BFO's acquisition of the Property in order to: (a) reflect the $120,000,000 acquisition price and the corresponding insurable values; (b) satisfy the anticipated insurance requirements of the prospective senior lender, Pinnacle Federal Savings Bank ("Pinnacle"), which is expected to provide a senior mortgage loan of up to $78,000,000; and (c) conform to BFO's internal risk management standards, which are more rigorous than what Meridian has historically maintained.
Key Recommendations: The following areas have been identified as requiring attention in connection with the transition to a post-acquisition insurance program:
• Increased replacement cost coverage based on an updated replacement cost appraisal;
• Adjustment to rent loss and business income coverage to reflect an 18-month indemnity period at stabilized effective gross income;
• Addition of terrorism coverage under the Terrorism Risk Insurance Act ("TRIA"), including coverage for nuclear, biological, chemical, and radiological ("NBCR") perils;
• Procurement of lender-required endorsements, including mortgagee/loss payee designations, agreed amount endorsements, and cancellation notice provisions;
• Evaluation of the Property's FEMA flood zone status and procurement of appropriate excess flood coverage given the Property's proximity to the Hudson River; and
• Increased umbrella/excess liability limits to a minimum of $25,000,000.
The balance of this memorandum provides a detailed analysis of each coverage category, the anticipated lender requirements, and actionable due diligence steps to be taken prior to closing.
II. THE PROPERTY — OVERVIEW FOR INSURANCE PURPOSES
For purposes of this insurance review, the following description of the Property has been assembled from the due diligence materials received to date, including Seller's offering memorandum, the preliminary title report, the existing rent roll, and the building information provided by Atlas Urban Management Corp., the current property manager.
Address: 450 West 34th Street, New York, NY 10001
Tax Map Designation: Block 754, Lot 42, Borough of Manhattan, City of New York
Building Classification: Mixed-use (retail, office, and residential rental)
Year Built: 1928. The building is of steel-frame and masonry construction, originally developed as a commercial loft structure. The building underwent a substantial renovation program between 2016 and 2020, during which approximately $14,200,000 in capital improvements were made. These improvements included modernization of the elevator systems, replacement of the HVAC plant and distribution systems, upgrades to the electrical infrastructure, installation of a new fire alarm and sprinkler system, facade restoration, lobby renovation, and conversion of the upper floors (Floors 10–14) to residential rental units.
Gross Building Area: Approximately 186,400 square feet, distributed as follows:
Number of Stories: 14 stories above grade, plus cellar level.
Tenant Composition: The Property's commercial tenancy consists of the following principal tenants:
Retail (Floors 1–2):
• Harmon & Voss Retail Partners LLC — Ground floor retail space comprising approximately 14,200 square feet. Harmon & Voss operates a high-end home furnishing and design showroom.
• Solstice Wellness Studio Inc. — Lower level and second floor space comprising approximately 14,400 square feet. Solstice Wellness operates a fitness and wellness studio offering yoga, Pilates, and related classes. This tenant's use profile presents a somewhat elevated liability risk compared to standard retail or office tenancy, which is relevant to the general liability and umbrella coverage analysis below.
Office (Floors 3–9):
• Ridgepoint Consulting Group LLC — Floors 3 through 5, comprising approximately 41,700 square feet. Ridgepoint is a management consulting firm and represents the Property's largest single tenant by leased area.
• Calderon Specialty Insurance Digital Media Corp. — Floors 6 and 7, comprising approximately 27,800 square feet. Calderon Specialty Insurance Digital is a digital media and content production company. We note that this tenant's lease is scheduled to expire on January 31, 2028, which is less than two years from the anticipated closing date and represents a potential vacancy risk that must be factored into rent loss and business income coverage calculations.
• Miscellaneous Office Tenants — Floors 8 and 9, comprising approximately 27,800 square feet, are leased to various smaller office tenants with lease expirations ranging from 2027 through 2029.
Residential (Floors 10–14):
• Thirty-eight (38) residential rental units, comprising approximately 42,500 square feet.
Current Occupancy: The Property's overall occupancy rate is 87.4%, broken down as follows: retail is 100% occupied, office space is 81.2% occupied (reflecting vacancy on portions of Floors 8 and 9), and the residential component is 94.7% occupied (two of the 38 units are currently vacant).
Current Property Manager: Atlas Urban Management Corp. ("Atlas Urban"), represented by Gerald Fitch, Senior Property Manager. Atlas Urban operates the Property pursuant to a management agreement that runs through December 31, 2027, with a management fee equal to 4.0% of effective gross income. The management agreement and Atlas Urban's insurance status are relevant to this review, as discussed further in Sections III and IV below.
Annualized In-Place NOI: $6,960,000.
Purchase Price: $120,000,000, reflecting an implied capitalization rate of 5.80% on in-place net operating income.
The Property's 1928 construction date, its mixed-use character, and its Manhattan location are all significant factors in the insurance analysis. The age of the original structure, notwithstanding the 2016–2020 renovation, raises issues with respect to ordinance or law coverage (the cost of compliance with current building codes in the event of a substantial loss) and the adequacy of the replacement cost valuation. The mixed-use character of the Property—combining retail, office, and residential components—requires insurance coverage that addresses the distinct risk profiles of each component, including the higher liability exposure associated with the fitness/wellness tenant and the residential units. Finally, the Manhattan location implicates terrorism coverage requirements and, given the Property's proximity to the Hudson River on the West Side, potential flood risk.
III. EXISTING INSURANCE PROGRAM — SUMMARY OF CURRENT POLICIES
Set forth below is a summary of the existing insurance policies currently maintained by Meridian on the Property, based on the limited documentation made available to date. As noted in Section IX below, we have requested complete copies of all current policies from Seller's counsel, Hargrove, Pettigrew & Sloane LLP (Rebecca Tran), as part of the preliminary due diligence request list. The summaries below are based on the insurance certificates and policy declaration pages provided to date and should be supplemented once full policy forms and endorsements are received and reviewed.
A. Property / Casualty Insurance (All-Risk)
Named Insured: Meridian Gateway Holdings LLC
Policy Period: The current policy appears to be written on an annual basis, with a renewal date to be confirmed upon receipt of the full policy documentation. Based on the declaration page received, the current policy term appears to run from approximately April 1, 2025, through March 31, 2026.
Replacement Cost Value Insured: The insured replacement cost value shown on the Seller's schedule of values has not yet been provided in full. However, based on the limited information available and Lockhart & Pryor's independent analysis, the current replacement cost value is estimated to be in the range of $55,000,000 to $65,000,000. This estimate is based on the building's age, construction class (steel-frame and masonry), gross building area of 186,400 square feet, and the scope of the 2016–2020 renovation program. We note that replacement cost estimates for older Manhattan buildings can vary significantly depending on the methodology employed and the assumptions made regarding code compliance costs. Lockhart & Pryor has recommended that an updated replacement cost estimate be obtained from Kensington Valuation Group Inc. as part of the acquisition appraisal process.
Coverage Form: The existing policy appears to be written on a special form (all-risk) property policy, which provides coverage for direct physical loss or damage to the insured property from all causes of loss not specifically excluded.
Perils Covered: Standard special form perils, including fire, windstorm, hail, explosion, vandalism and malicious mischief, water damage (subject to standard exclusions), aircraft or vehicle impact, and other covered causes of loss. Specific exclusions (e.g., flood, earthquake, terrorism) are discussed separately below.
Deductibles: The current deductible levels have not been confirmed from the full policy documents, but based on the declaration page and the standard market for properties of this type and value, the per-occurrence deductible is expected to be in the range of $25,000 to $50,000.
Ordinance or Law Coverage: It has not been confirmed from the available documentation whether the current policy includes ordinance or law coverage. This coverage is critically important for the Property given its 1928 original construction date. In the event of a substantial loss requiring rebuilding, the costs of bringing the structure into compliance with current New York City building codes, zoning regulations, and the Americans with Disabilities Act could be significant and are typically excluded from a standard property policy absent an ordinance or law endorsement. We have flagged this item for confirmation upon receipt of the full policy.
Equipment Breakdown / Boiler and Machinery: It has not been confirmed whether the current policy includes an equipment breakdown endorsement (formerly known as boiler and machinery coverage). Given the building's mechanical systems—including the elevator systems, HVAC plant, and electrical distribution—this coverage is important. The building systems were renovated during the 2016–2020 capital improvement program but are now six to ten years old and will require ongoing maintenance and eventual replacement. Equipment breakdown coverage is typically required by institutional lenders.
Annual Premium Allocation: The property/casualty component constitutes a portion of the total annual insurance expense of $312,000 reported on Seller's operating statement. The exact premium allocation by coverage line has not yet been broken out from the Seller's insurance documentation and is included as an item on the due diligence request list.
B. General Liability Insurance
Named Insured: Meridian Gateway Holdings LLC
Coverage Limits: The current per-occurrence and general aggregate limits have not been confirmed from the full policy but are expected to be consistent with the standard for Manhattan mixed-use commercial properties, which is typically a minimum of $1,000,000 per occurrence and $2,000,000 in the general aggregate. Given the mixed-use nature of the Property and the presence of a fitness/wellness tenant (Solstice Wellness Studio Inc.), it would be prudent to confirm that the limits are adequate for the Property's risk profile.
Additional Insured Endorsements: We are reviewing whether the current general liability policy includes additional insured endorsements naming major tenants and the property manager, Atlas Urban Management Corp. Landlord general liability policies for mixed-use properties should typically include the property manager as an additional insured, as the manager's day-to-day operations at the Property create potential liability exposure for the property owner. The status of additional insured endorsements for specific tenants should also be reviewed in connection with the lease insurance requirements discussed in Section IV below.
Products and Completed Operations Coverage: Standard commercial general liability ("CGL") policies include coverage for products and completed operations liability. The relevance of this coverage is somewhat limited for a property holding entity, but it should be confirmed as included in the existing policy.
Personal and Advertising Injury Coverage: Standard CGL coverage includes personal and advertising injury liability, which provides coverage for claims of libel, slander, wrongful eviction, and similar torts. This should be confirmed as included.
C. Umbrella / Excess Liability Insurance
Named Insured: Meridian Gateway Holdings LLC
Coverage Limits: The current umbrella or excess liability limit has not been confirmed from the available documentation. Standard umbrella coverage for a Manhattan mixed-use asset in this value range (particularly one with a fitness/wellness component and a residential component) is typically in the range of $10,000,000 to $25,000,000. As discussed in Section V below, Pinnacle Federal Savings Bank is expected to require a minimum umbrella limit of $25,000,000 for a loan of this size on a Manhattan property. If the current umbrella limit is below $25,000,000, this will represent a significant gap that must be addressed post-acquisition.
Follows Form: Umbrella/excess liability policies are typically written on a "follows form" basis, meaning they adopt the terms, conditions, and exclusions of the underlying primary policies (general liability, employer's liability, and commercial auto liability). The umbrella policy may also contain "drop-down" provisions that provide primary coverage in situations where the underlying primary policies do not respond but where the loss falls within the scope of the umbrella's broader coverage grant. The specific follows-form and drop-down provisions of the current umbrella policy should be reviewed upon receipt of the full policy.
D. Rent Loss / Business Income Insurance
Named Insured: Meridian Gateway Holdings LLC
Coverage: This policy provides coverage for loss of rental income resulting from covered perils that render the Property wholly or partially untenantable. For a multi-tenant commercial property, this coverage is essential because it replaces the income stream that the owner would have received from tenants during the period of restoration following a covered loss.
Indemnity Period: The current indemnity period has not been confirmed. Typical indemnity periods for rent loss/business income coverage range from 12 to 18 months. As discussed in Section VII below, we recommend an 18-month indemnity period for the post-acquisition program to account for the potential complexity and duration of rebuilding a 14-story mixed-use building in Manhattan.
Covered Rental Income Amount: The covered amount should reflect the Property's effective gross income, which is approximately $10,796,000 on an annualized basis. This figure comprises gross potential rent of approximately $9,333,500, less vacancy and collection loss of approximately $1,177,500, plus other income of approximately $2,640,000 derived from antenna and telecommunications installations, building signage rights, and parking revenue. It is important that the rent loss coverage amount be set at a level sufficient to cover the full effective gross income, including the ancillary income streams, as the loss of these income sources following a casualty event could be significant.
Extended Period of Indemnity: An extended period of indemnity provision extends the coverage beyond the restoration period to account for the time necessary to re-tenant the Property and return it to its pre-loss occupancy level. This provision is particularly relevant given the current 87.4% overall occupancy rate and the near-term lease expirations on certain office floors.
Extra Expense Coverage: Extra expense coverage reimburses the insured for expenses incurred to continue operations or mitigate loss during the restoration period, such as the cost of temporary space or facilities. Whether this coverage is included in the current policy or written as a separate endorsement should be confirmed.
E. Flood Insurance
Named Insured: Meridian Gateway Holdings LLC
FEMA Flood Zone Determination: The Property is located on Manhattan's West Side, in proximity to the Hudson River. The FEMA flood zone determination for the specific parcel must be confirmed. The Property may be located within Zone X (an area of minimal flood hazard) or, given its proximity to the Hudson River, within Zone AE (a special flood hazard area, or "SFHA"). This determination has significant implications for both insurance requirements and costs. Properties within an SFHA are subject to mandatory flood insurance purchase requirements under federal law when financed with a federally related mortgage loan, and institutional lenders will require flood insurance regardless of the flood zone if there is any arguable flood risk.
Current Flood Coverage: The source and limits of the Seller's current flood coverage have not been confirmed. If the Property is currently insured under the National Flood Insurance Program ("NFIP"), the maximum available coverage for a commercial building is $500,000 for the building and $500,000 for contents—limits that are grossly insufficient for an asset of this value and insurable replacement cost. If NFIP coverage is the only source of flood insurance in place, excess or private flood coverage will need to be procured post-acquisition to provide adequate protection.
Lender Flood Insurance Requirements: If the Property is determined to be located within an SFHA, Pinnacle Federal Savings Bank will be required by federal regulations to confirm that flood insurance is in place as a condition of the mortgage loan. Even if the Property is not within an SFHA, Pinnacle may impose flood insurance requirements as a matter of prudent underwriting, particularly given the proximity to the Hudson River and the presence of mechanical equipment and storage in the cellar level. Private excess flood coverage above NFIP limits should be explored through Lockhart & Pryor.
F. Terrorism Insurance (TRIA)
Whether Meridian currently maintains terrorism insurance coverage under the Terrorism Risk Insurance Act of 2002, as reauthorized ("TRIA"), has not been confirmed from the available documentation. TRIA provides a federal backstop for insured losses resulting from certified acts of terrorism, and commercial property insurers are required to "make available" terrorism coverage to their policyholders. However, policyholders are not required to purchase this coverage, and many privately held property owners in secondary markets decline it due to cost.
For a Manhattan mixed-use asset with an acquisition price of $120,000,000, terrorism coverage is a virtual necessity. Institutional lenders such as Pinnacle Federal Savings Bank uniformly require TRIA coverage for loans secured by Manhattan commercial real estate. Furthermore, it is important to confirm whether the current policy, if terrorism coverage is in place, includes or excludes NBCR (nuclear, biological, chemical, radiological) perils. NBCR coverage is increasingly required by institutional lenders and preferred equity investors, and its availability and cost should be confirmed with Lockhart & Pryor as part of the post-acquisition insurance marketing process.
G. Workers' Compensation and Employer's Liability
Workers' compensation and employer's liability insurance is not directly applicable to Meridian Gateway Holdings LLC as a property holding entity, since Meridian does not directly employ the building staff. Building operations and maintenance staff are employed by Atlas Urban Management Corp. under the existing property management agreement. Accordingly, the relevant workers' compensation and employer's liability coverage is maintained by Atlas Urban.
We should obtain and review current certificates of insurance from Atlas Urban Management Corp. to confirm that appropriate workers' compensation and employer's liability coverage is in place for all building personnel. This is particularly important given that building staff are engaged in activities that present occupational hazard exposure, including maintenance of building systems, operation of elevators, and general building upkeep. The certificates should confirm that coverage meets New York State requirements and that the policy limits are adequate.
H. Current Annual Insurance Cost
The total annual insurance expense for the Property, as reported on Seller's operating statement, is $312,000. This figure represents approximately 8.1% of total operating expenses of $3,836,000 and approximately 2.9% of the Property's annualized effective gross income of $10,796,000.
A detailed breakdown of the $312,000 annual insurance cost by coverage type (property/casualty, general liability, umbrella, rent loss, flood, etc.) has been requested from Seller's counsel as part of the due diligence request list. This breakdown is necessary to evaluate the adequacy of the existing premium allocation across coverage lines and to facilitate an accurate comparison with the estimated post-acquisition insurance costs prepared by Lockhart & Pryor.
IV. REVIEW OF LEASE INSURANCE REQUIREMENTS
The commercial leases at the Property impose insurance obligations on tenants that are relevant to the Property's overall insurance profile. Properly structured tenant insurance requirements serve as a first line of defense against claims arising from tenant operations, reducing the landlord's direct exposure and supporting the landlord's ability to obtain favorable insurance terms. Set forth below is a summary of the tenant insurance requirements under the major commercial leases, together with our observations regarding compliance and any identified gaps.
Harmon & Voss Retail Partners LLC
Premises: Ground floor retail, approximately 14,200 square feet.
Lease Expiration: November 30, 2032.
Insurance Requirements: The Harmon & Voss lease should require the tenant to maintain commercial general liability insurance with minimum per-occurrence and aggregate limits appropriate for a ground-floor retail operation in Manhattan (typically $1,000,000 per occurrence / $2,000,000 aggregate, with higher limits potentially required depending on the nature of the retail operations). The lease should require additional insured endorsements naming the landlord, the landlord's managing agent, and any mortgagee. The tenant should also be required to maintain property insurance on its trade fixtures, equipment, and leasehold improvements at full replacement cost. We are reviewing the specific insurance provisions of the Harmon & Voss lease and will report any deficiencies.
Solstice Wellness Studio Inc.
Premises: Lower level and second floor, approximately 14,400 square feet.
Lease Expiration: March 31, 2029.
Insurance Requirements and Risk Profile: Solstice Wellness operates a fitness and wellness studio offering yoga, Pilates, and related physical fitness classes. This use presents a higher liability exposure than standard retail or office operations due to the risk of personal injury to studio patrons during exercise classes, the use of specialized equipment, and the potential for slip-and-fall claims in locker room and shower areas. The lease insurance requirements should reflect this elevated risk profile by requiring higher CGL limits (we would recommend a minimum of $2,000,000 per occurrence / $5,000,000 aggregate, or alternatively, a requirement that the tenant maintain an umbrella policy of at least $5,000,000). Additional insured endorsements in favor of the landlord are essential. We should confirm that the lease requires the tenant to carry professional liability insurance to the extent instructors provide individualized fitness guidance or wellness services. Compliance with these requirements should be verified through current certificates of insurance.
Ridgepoint Consulting Group LLC
Premises: Floors 3 through 5, approximately 41,700 square feet.
Lease Expiration: August 31, 2030.
Insurance Requirements: As a management consulting firm, Ridgepoint presents a standard office-use risk profile. The lease should require CGL coverage at customary limits ($1,000,000 per occurrence / $2,000,000 aggregate), additional insured endorsements, and property insurance on tenant improvements and personal property. As the Property's largest single tenant by area, Ridgepoint's compliance with its lease insurance obligations is of particular importance.
Calderon Specialty Insurance Digital Media Corp.
Premises: Floors 6 and 7, approximately 27,800 square feet.
Lease Expiration: January 31, 2028.
Insurance Requirements: Standard office tenant insurance requirements should apply. We note that Calderon Specialty Insurance Digital's lease expires in less than two years from the anticipated closing date, and the potential vacancy of this space following lease expiration is relevant to the rent loss / business income coverage analysis. If Calderon Specialty Insurance Digital does not renew or if the space is not re-leased promptly, the resulting vacancy will reduce the Property's income stream. The rent loss coverage should be calibrated to account for this risk by insuring stabilized income (including the rent attributable to Calderon Specialty Insurance Digital's space) for a sufficient indemnity period.
Miscellaneous Office Tenants (Floors 8–9)
Premises: Floors 8 and 9, approximately 27,800 square feet (partially occupied).
Lease Expirations: Various, ranging from 2027 through 2029.
Insurance Requirements: The insurance provisions of each individual lease on Floors 8 and 9 should be reviewed to confirm that appropriate CGL coverage, additional insured endorsements, and property insurance requirements are in place. Given the partial vacancy on these floors, particular attention should be paid to whether the existing tenants' insurance covers the common areas and shared spaces on these floors.
Residential Tenants (38 Units, Floors 10–14)
Premises: 38 residential rental units, approximately 42,500 square feet.
Lease Terms: Standard residential leases; specific terms to be reviewed.
Renters' Insurance Requirements: We should review the residential lease form to determine whether tenants are required to maintain renters' insurance (also known as tenants' or personal property insurance). While not universally required in New York residential leases, renters' insurance is increasingly common and serves to protect tenants' personal property and provide personal liability coverage, thereby reducing the likelihood that tenants will assert claims against the landlord for loss of personal property. If the current residential lease form does not include a renters' insurance requirement, BFO may wish to implement such a requirement for new leases and lease renewals going forward.
Compliance Status. We have requested current certificates of insurance from all major commercial tenants through Atlas Urban Management Corp. (Gerald Fitch, Senior Property Manager) to confirm that each tenant is currently in compliance with its lease insurance obligations. Upon receipt of these certificates, we will review each for compliance with the applicable lease requirements, including confirmation of required limits, additional insured endorsements, and policy currency. Any identified gaps or non-compliance will be reported to BFO with recommendations for remediation, which may include demands for compliance directed to non-conforming tenants prior to or promptly following closing.
V. PROSPECTIVE LENDER INSURANCE REQUIREMENTS — PINNACLE FEDERAL SAVINGS BANK
Context. BFO is in discussions with Pinnacle Federal Savings Bank ("Pinnacle") regarding senior acquisition financing of up to $78,000,000, representing a loan-to-value ratio of approximately 65% based on the $120,000,000 purchase price. The principal contact at Pinnacle for this engagement is Daniel Ortega, Senior Vice President, Commercial Real Estate Lending, located at 245 Park Avenue, 12th Floor, New York, New York 10167.
The indicative terms discussed to date include a floating interest rate of SOFR plus 225 basis points (estimated at approximately 6.60% based on current SOFR levels), a five-year loan term, and a 30-year amortization schedule. Based on these indicative terms, the estimated annual debt service on the $78,000,000 mortgage is approximately $5,986,800, yielding a projected debt service coverage ratio ("DSCR") of approximately 1.16× based on the Property's current in-place NOI of $6,960,000.
As of the date of this memorandum, Pinnacle has not yet issued a formal loan term sheet. Accordingly, the specific insurance requirements of the loan have not been formally stipulated. However, based on our experience with institutional commercial real estate lenders and the standard requirements imposed by lenders of Pinnacle's profile, we anticipate that the loan documents will require the borrower to maintain the following insurance coverage throughout the term of the loan:
Anticipated Lender Insurance Requirements
Property / Casualty Insurance:
Replacement cost coverage on a special form (all-risk) basis, with an agreed amount endorsement to eliminate any coinsurance penalty. The replacement cost value must be sufficient to cover the full cost of rebuilding the improvements, as determined by an appraisal or insurance valuation. The lender shall be named as first mortgagee and loss payee under a standard mortgagee clause. All proceeds from covered losses above a specified threshold will typically be required to be deposited with the lender or into a lender-controlled escrow account for application to restoration of the improvements.
General Liability Insurance:
Minimum coverage of $1,000,000 per occurrence and $2,000,000 in the general aggregate. The lender shall be named as an additional insured under the policy.
Umbrella / Excess Liability Insurance:
Minimum umbrella or excess liability coverage of $25,000,000. This level of umbrella coverage is typical for a loan of $78,000,000 secured by a Manhattan mixed-use commercial property and reflects the heightened liability exposure associated with properties of this type and location. Some institutional lenders require umbrella limits equal to or exceeding the outstanding loan balance, though $25,000,000 is more commonly seen as the minimum threshold.
Rent Loss / Business Income Insurance:
Minimum coverage equal to 12 months of projected gross revenue, which based on the Property's current effective gross income of $10,796,000, would require coverage of at least $10,796,000. Some institutional lenders, particularly for complex mixed-use properties or properties with significant re-leasing risk, require an 18-month indemnity period, which would correspond to coverage of approximately $16,194,000. We recommend proactively structuring the post-acquisition program with 18-month coverage, which is our recommendation independent of the lender's requirements.
Flood Insurance:
If the Property is determined to be located within a Special Flood Hazard Area ("SFHA") as designated by FEMA, the lender is required by federal law to confirm that flood insurance is in place in an amount equal to the lesser of: (a) the outstanding loan balance; (b) the maximum coverage available under the NFIP; or (c) the insurable value of the property. Given that NFIP limits for commercial properties ($500,000 building / $500,000 contents) are far below the loan amount of $78,000,000, excess or private flood insurance will be required to bridge the gap. Even if the Property is not located in an SFHA, Pinnacle may require flood coverage as a matter of prudent underwriting given the West Side location and proximity to the Hudson River.
Terrorism / TRIA Coverage:
Full TRIA coverage is anticipated to be required, including coverage for NBCR perils. This requirement is standard for institutional loans secured by Manhattan commercial real estate, reflecting the heightened terrorism risk associated with high-profile urban locations. NBCR coverage, while less universally required in secondary markets, is a standard requirement for Manhattan properties and is available through the commercial insurance market, albeit at additional premium cost.
Earthquake Insurance:
Earthquake coverage is not typically required for properties located in New York City, which is classified as a low seismic risk zone. However, we will confirm whether Pinnacle's standard requirements include earthquake coverage; if so, it can typically be obtained at modest cost.
Ordinance or Law Coverage:
An ordinance or law endorsement is typically required, covering the increased cost of construction resulting from the enforcement of building codes, zoning ordinances, or other legal requirements in effect at the time of rebuilding. Coverage limits are typically specified as a percentage of the building's insured value (commonly 25% or higher for older buildings).
Equipment Breakdown / Boiler and Machinery:
Coverage for loss resulting from the sudden and accidental breakdown of building equipment, including boilers, HVAC systems, elevators, and electrical equipment, is typically required as an endorsement to the property policy or as a standalone policy.
Builder's Risk Insurance:
Not applicable at the time of acquisition unless BFO plans to undertake capital improvements immediately following closing. If capital improvements are planned, builder's risk coverage will be required during the construction period.
Insurance Carrier Rating:
All insurance policies must be issued by carriers with a minimum financial strength rating of A- (Excellent) with a financial size category of VII or higher, as rated by A.M. Best Company, or an equivalent rating from Standard & Poor's or Moody's. This requirement ensures that the insurance carriers have the financial capacity to pay claims in the event of a loss.
Deductible Maximums:
Lenders typically impose maximum deductible levels to limit the borrower's out-of-pocket exposure before insurance coverage applies. Standard deductible maximums for properties of this type are $50,000 to $100,000 per occurrence for property/casualty coverage and $25,000 for other coverage lines (e.g., general liability, equipment breakdown).
Certificates and Endorsements:
The lender will require delivery of original ACORD certificates of insurance and copies of all required endorsements prior to closing and upon each policy renewal. Policies must include a provision requiring the insurer to provide the lender with not less than 30 days' prior written notice of cancellation, non-renewal, or any material change in coverage. Some lenders require 60 days' notice. The certificates must evidence that the lender has been properly named as mortgagee, loss payee, and/or additional insured, as applicable, on each policy.
We note again that the foregoing requirements represent our anticipation of Pinnacle's standard institutional requirements based on market practice. The formal insurance requirements will be set forth in the loan commitment letter and loan agreement, and may vary in certain respects from the above. We will review the specific insurance provisions of the loan documents upon receipt and advise BFO of any requirements that differ from or exceed the parameters discussed herein.
VI. PREFERRED EQUITY PROVIDER — CALIBER POINT CAPITAL PARTNERS LP
BFO is in preliminary discussions with Caliber Point Capital Partners LP ("Caliber Point") regarding the possible provision of up to $18,000,000 in preferred equity for the acquisition. The principal contact at Caliber Point is Priya Sundaram, Managing Director, located at 590 Madison Avenue, Suite 3100, New York, New York 10022. The indicative preferred return under discussion is 10.5% per annum.
As of the date of this memorandum, these discussions remain preliminary and no term sheet has been issued by Caliber Point. Accordingly, specific insurance requirements imposed by Caliber Point, if any, are not yet known. However, based on our experience with preferred equity structures in commercial real estate transactions, we anticipate that Caliber Point may impose insurance requirements that supplement those of the senior lender, including:
• Designation of Caliber Point (or a designee) as an additional insured under the Property's general liability and umbrella policies;
• Notice provisions requiring the insurer to provide Caliber Point with advance written notice of cancellation, non-renewal, or material change in coverage, similar to the notice provisions required by the senior lender;
• Requirements that insurance coverage levels meet specified minimums, which may in some instances exceed the senior lender's requirements; and
• Requirements regarding the disposition of insurance proceeds, which may intersect with the intercreditor arrangements between Pinnacle and Caliber Point.
These matters will be addressed in detail if and when a preferred equity term sheet is issued by Caliber Point and the structure of the capital stack is finalized. In the interim, we recommend that the post-acquisition insurance program be designed to meet BFO's internal standards and the anticipated Pinnacle requirements, with the understanding that incremental adjustments may be necessary to accommodate Caliber Point's requirements.
VII. POST-ACQUISITION INSURANCE PROGRAM — RECOMMENDATIONS
Set forth below are our recommendations for the post-acquisition insurance program to be placed by BFO effective as of the closing date. These recommendations have been developed in coordination with Lockhart & Pryor Insurance Advisors LLC and are designed to address the anticipated requirements of Pinnacle Federal Savings Bank, BFO's internal risk management standards, and industry best practices for Manhattan mixed-use commercial properties.
A. Named Insured and Policy Structure
Upon closing, the named insured on all policies should be BFO 450 West 34th LLC, the acquisition special purpose vehicle to be formed as a Delaware limited liability company, with Briarwood Family Office LLC as the sole member. This SPV structure is consistent with standard institutional real estate acquisition practice and provides entity-level liability protection for BFO.
The following additional parties should be named on the policies, as applicable:
• Briarwood Family Office LLC — additional named insured on all policies, as the sole member and indirect owner of the Property;
• Pinnacle Federal Savings Bank — mortgagee and loss payee under the property/casualty and flood policies, and additional insured under the general liability and umbrella policies;
• Any future mezzanine lender or preferred equity provider (e.g., Caliber Point Capital Partners LP, if its investment proceeds) — additional insured and/or additional loss payee/mortgagee, as required by the applicable intercreditor agreement;
• Property Manager — whether Atlas Urban Management Corp. (if the existing management agreement is continued post-closing) or any successor property manager, to be named as an additional insured under the general liability and umbrella policies to the extent of its management activities at the Property.
B. Property / Casualty Coverage
The cornerstone of the post-acquisition insurance program is the property/casualty policy, which must be structured to provide adequate replacement cost coverage for the building improvements.
Replacement Cost Valuation: The insured replacement cost value should be determined based on an updated appraisal and replacement cost analysis to be prepared by Kensington Valuation Group Inc. (Robert Huang, MAI). The acquisition price of $120,000,000 includes the value of the underlying land, which is not insurable, and accordingly the insurable replacement cost of the building structure alone is expected to be significantly lower than the purchase price. Based on Lockhart & Pryor's preliminary analysis, the insurable replacement cost is estimated to fall in the range of $55,000,000 to $70,000,000, depending on the methodology used and the assumptions made regarding code compliance and construction costs in the current market. The Kensington appraisal will provide a more definitive figure.
Agreed Amount Endorsement: Lockhart & Pryor recommends procuring an agreed amount endorsement on the property policy. This endorsement eliminates the coinsurance penalty that could otherwise apply if the insured replacement cost value is later determined to be less than the actual replacement cost at the time of loss. Under a standard coinsurance clause, the insured is penalized (i.e., recovers only a proportionate share of the loss) if the insured value is less than a specified percentage (typically 80% or 90%) of the actual replacement cost. The agreed amount endorsement removes this risk by providing that the insurer and the insured have agreed upon the insured value, and no coinsurance penalty will apply so long as the insured value meets or exceeds the agreed amount. The agreed amount must be updated periodically (typically annually) to reflect changes in construction costs.
Ordinance or Law Coverage: Given the Property's 1928 original construction date, we strongly recommend procuring ordinance or law coverage at a level equal to at least 25% of the building's insured value. In the event of a substantial casualty requiring demolition and rebuilding, current New York City building codes, zoning requirements, fire safety regulations, and accessibility standards (including ADA compliance) would impose construction requirements that could materially increase the cost of rebuilding compared to simple like-kind replacement. Ordinance or law coverage addresses three categories of increased cost: (1) the loss in value of the undamaged portion of the building if demolition is required by law; (2) the cost of demolishing the undamaged portion; and (3) the increased cost of construction to comply with current laws and codes. At an estimated replacement cost of $60,000,000, a 25% ordinance or law endorsement would provide $15,000,000 in additional coverage, which we believe is appropriate for a building of this age and complexity.
Equipment Breakdown Endorsement: An equipment breakdown endorsement should be included in the property policy (or, alternatively, a standalone equipment breakdown policy should be procured). This coverage will respond to losses caused by the sudden and accidental breakdown of building mechanical systems, including the elevators (which were modernized as part of the 2016–2020 renovation), the HVAC plant and distribution system, electrical switchgear and transformers, and the fire suppression and alarm systems. While these systems were renovated relatively recently, they are now six to ten years old and will be subject to increasing maintenance needs.
C. General Liability
We recommend a base general liability policy with limits of $1,000,000 per occurrence and $2,000,000 in the general aggregate, consistent with the anticipated Pinnacle requirements and standard market practice for commercial properties. The policy should be written on an ISO CG 00 01 occurrence form or equivalent.
Given the Property's mixed-use character, the general liability policy should be reviewed to ensure that the coverage appropriately addresses the risks associated with each component of the Property:
• Retail component: Slip-and-fall and other premises liability claims from retail customers;
• Fitness/wellness component (Solstice Wellness Studio): Elevated personal injury risk associated with physical fitness activities. While Solstice Wellness is expected to maintain its own CGL policy pursuant to its lease obligations, the landlord should ensure that its own policy does not contain exclusions that would limit coverage for claims arising from the fitness operations;
• Residential component: Premises liability claims from residential tenants and their guests, including claims related to common area maintenance, elevator operations, and security.
Higher per-occurrence limits may be warranted for the base CGL policy given the presence of the fitness tenant and the residential units. Lockhart & Pryor can advise on whether the market supports a $2,000,000 per occurrence / $4,000,000 aggregate base policy, or whether additional coverage should be achieved through the umbrella/excess layer.
D. Umbrella / Excess Liability
We recommend a minimum umbrella/excess liability limit of $25,000,000, which is consistent with the anticipated Pinnacle requirements and BFO's portfolio-wide risk management standards. The umbrella policy should follow form over the underlying general liability, commercial auto liability (if applicable), and employer's liability policies.
We recommend that BFO evaluate whether the Property can be added to BFO's existing portfolio umbrella program, which may cover other properties in BFO's investment portfolio. Portfolio umbrella programs typically offer more favorable pricing per property than standalone policies because the risk is spread across multiple assets. Lockhart & Pryor should coordinate with BFO's portfolio insurance broker to determine whether this approach is feasible and whether it would result in premium savings.
E. Rent Loss / Business Income
We recommend an 18-month indemnity period for rent loss/business income coverage, with a covered amount based on the Property's stabilized effective gross income of $10,796,000 per year. An 18-month indemnity period would correspond to approximately $16,194,000 in covered income.
The 18-month indemnity period is recommended for several reasons:
First, the complexity of restoring a 14-story mixed-use building in Manhattan—including the time required for demolition, engineering, permitting, construction, and final inspections—could easily exceed 12 months, particularly in the case of a significant fire or other major casualty.
Second, even after physical restoration is complete, it may take additional time to re-tenant vacant space and return the Property to its pre-loss occupancy level. This is particularly relevant given the current 87.4% overall occupancy rate and the near-term lease expirations on certain office floors, most notably the Calderon Specialty Insurance Digital Media Corp. lease expiring January 31, 2028.
Third, the extended period of indemnity provision, which extends coverage beyond the completion of physical restoration to account for the re-tenanting period, should be included and should provide at least six months of additional coverage.
The covered income amount should include all components of effective gross income, including base rental income from retail, office, and residential tenants, as well as ancillary income from antenna and telecommunications installations, building signage rights, and parking revenue.
F. Flood Insurance
The flood zone determination for the Property must be confirmed as a priority due diligence item. If the Property is located within a Special Flood Hazard Area, full flood coverage will be required by Pinnacle, including excess flood coverage above the NFIP maximum limits.
Even if the Property is determined to be located in Zone X (minimal flood risk), Lockhart & Pryor recommends procuring a private flood insurance policy. This recommendation is based on the Property's proximity to the Hudson River and the presence of significant mechanical equipment and building infrastructure in the cellar level. Flooding of the cellar—whether from storm surge, rainfall, or water main break—could result in significant damage to the building's HVAC systems, electrical equipment, elevator pits, and stored materials. A private flood policy would provide broader coverage and higher limits than an NFIP policy, at a cost that Lockhart & Pryor believes is reasonable relative to the potential exposure.
G. Terrorism / TRIA
Full TRIA coverage is required for a Manhattan commercial asset of this size and profile. The policy should include coverage for both conventional terrorism and NBCR perils. NBCR coverage is likely to be required by Pinnacle and is recommended by Lockhart & Pryor as a matter of prudent risk management.
Lockhart & Pryor will obtain quotes for TRIA and NBCR coverage from the carrier market as part of the post-acquisition insurance marketing process. The cost of terrorism coverage varies significantly depending on the insured value, the property's location, and the carrier, but is typically in the range of 5% to 15% of the base property premium for Manhattan properties. NBCR coverage carries an additional premium.
H. Other Recommended Coverages
In addition to the core coverage categories discussed above, the following supplemental coverages should be considered for the post-acquisition program:
Directors and Officers Liability: If BFO 450 West 34th LLC is managed by one or more designated managers or if Briarwood Family Office LLC serves as the managing member, directors and officers (or managers and members) liability insurance may be appropriate to protect against claims alleging mismanagement, breach of fiduciary duty, or other wrongful acts in the management of the SPV. The need for and scope of this coverage should be evaluated in consultation with BFO's general counsel.
Cyber Liability: The Property's building systems may include networked access control systems, building automation systems (HVAC, lighting), and tenant-facing network infrastructure. To the extent these systems are connected to the internet or to external networks, they present potential cybersecurity risk. Cyber liability insurance would provide coverage for data breaches, network security failures, and related liabilities. The scope of networked building systems at the Property should be assessed by BFO's IT and facilities management team, and cyber liability coverage procured if warranted.
Environmental Liability: The Phase I Environmental Site Assessment prepared by Whitmore Environmental Sciences LLC, dated June 15, 2020, identified a de minimis concern related to potential historical dry-cleaning operations at an adjacent lot. While the Phase I did not identify any recognized environmental conditions ("RECs") at the Property itself, the proximity of a potential historical dry-cleaning operation raises the possibility of vapor intrusion or subsurface contamination migration. An environmental liability policy (also known as a pollution legal liability policy) would provide coverage for third-party bodily injury and property damage claims, cleanup costs, and defense costs arising from environmental contamination at or migrating from the Property. We recommend that BFO consider procuring such a policy, particularly if the Phase II investigation (if one is conducted) identifies any conditions of concern.
Title Insurance: Title insurance for the acquisition is being addressed separately and is not within the scope of this memorandum. For informational purposes, the title insurance policy is expected to be issued by Granite State Title Insurance Company at the full acquisition price of $120,000,000.