PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
DUE DILIGENCE SUMMARY MEMORANDUM
MEMORANDUM
This memorandum is protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges. It is intended solely for the use of the addressees and should not be disclosed to, or relied upon by, any third party without the prior written consent of Calderwood & Harkness LLP.
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I. EXECUTIVE SUMMARY AND PURPOSE
A. Purpose of This Memorandum
This memorandum summarizes the results of all due diligence workstreams conducted by Calderwood & Harkness LLP ("C&H" or the "Firm") in connection with the proposed acquisition of The Linden at Gramercy Park, a 212-unit Class A multifamily residential property with two ground-floor retail units located at 245 East 21st Street, New York, New York 10010 (the "Property"), by Gramercy Linden PropCo LLC ("PropCo"), a wholly owned subsidiary of Gramercy Linden JV LLC ("GLJV"), from Linden Gramercy Holdings LLC (the "Seller"). The due diligence workstreams addressed in this memorandum include, without limitation, title, survey, environmental, zoning, lease audit, organizational and authority review, property condition, insurance, financial underwriting cross-check, and appraisal review.
B. Transaction Overview
The proposed acquisition is governed by that certain Purchase and Sale Agreement, dated March 15, 2023, by and between Seller, as seller, and PropCo, as purchaser (the "PSA"), pursuant to which PropCo has agreed to acquire fee simple title to the Property for a purchase price of Forty Million Dollars ($40,000,000) (the "Purchase Price"). The PSA provides for a thirty (30) day due diligence period commencing on the date of execution of the PSA, which period expires on April 14, 2023 (the "Diligence Expiration Date"). Upon expiration of the Diligence Expiration Date without termination by PropCo, the Two Million Dollar ($2,000,000) earnest money deposit (the "Deposit") currently held in escrow by Archer & Towne Title Company shall become non-refundable (i.e., the Deposit "goes hard"), except in the event of a Seller default or failure of a closing condition expressly set forth in the PSA.
This memorandum is being delivered two (2) days prior to the Diligence Expiration Date to allow the client sufficient time to make an informed go/no-go decision regarding the continuation of the transaction and the release of the Deposit.
C. Joint Venture and Capital Structure
The acquisition is structured as a "club deal" joint venture among three co-investors, with the following equity commitments:
The balance of the Purchase Price, together with closing costs, will be funded by a senior acquisition loan in the principal amount of Twenty-Six Million Dollars ($26,000,000) from Pinnacle Fidelity Bank, N.A. ("Pinnacle Fidelity" or the "Lender"), which has issued a commitment letter dated April 7, 2023 (the "Loan Commitment"). The equity contributions and the senior loan proceeds are expected to be combined to fund the Purchase Price, closing costs, and initial operating reserves at the closing of the transaction.
D. Property Overview
The Property is a Class A multifamily residential building containing 212 residential units and two (2) ground-floor retail units comprising approximately 4,800 square feet of combined retail space. The building contains approximately 187,400 gross square feet and is situated on a single tax lot designated as Block 899, Lot 42 in the Borough of Manhattan. Originally constructed in 1928, the Property underwent a comprehensive gut renovation during 2017–2018 at a cost of approximately $8.2 million, resulting in the full replacement of mechanical, electrical, and plumbing systems, new windows, a new roof, elevator modernization, and high-end individual unit build-outs. As of the January 2023 rent roll provided by Seller, the Property maintains a current occupancy rate of 96.2% (approximately 204 of 212 units occupied).
E. Overall Recommendation
Based on the comprehensive due diligence summarized in this memorandum, it is our recommendation that Briarwood Family Office LLC ("Briarwood" or the "Client") proceed to closing, subject to the resolution of the identified open items enumerated in Section X below. No material adverse conditions have been identified that would preclude the acquisition, and the open items are routine pre-closing deliverables that are expected to be resolved in the ordinary course prior to the anticipated closing date.
II. TITLE REVIEW
A. Title Commitment
C&H has reviewed the title commitment issued in connection with the proposed acquisition. The relevant details of the title commitment are as follows:
Title Commitment Number: AT-2023-MN-0041872
Issuing Agent: Archer & Towne Title Company
Title Officer: Philip Moreno
Office Address: 60 East 42nd Street, Suite 1840, New York, NY 10165
Effective Date: April 5, 2023
Proposed Insured (Owner's Policy): Gramercy Linden PropCo LLC, in the amount of $40,000,000
Proposed Insured (Lender's Policy): Pinnacle Fidelity Bank, N.A., in the amount of $26,000,000 (Loan No. PFB-CRE-2023-05741)
Vesting: Fee simple title is currently vested in Linden Gramercy Holdings LLC, a New York limited liability company.
The title commitment reflects a full title search of the property records of the City of New York, County of New York, and confirms that Seller holds fee simple title to the Property, subject to the exceptions and encumbrances discussed below. A copy of the complete title commitment is attached hereto as Exhibit A.
B. Schedule B — Standard Exceptions
The title commitment contains the standard printed exceptions customarily included in title commitments issued for New York City properties. These standard exceptions include:
(a) Rights or claims of parties in possession not shown by the public records;
(b) Encroachments, overlaps, boundary line disputes, and other matters that would be disclosed by an accurate survey and inspection of the Property;
(c) Easements, liens, and encumbrances not shown by the public records;
(d) Any lien for services, labor, or materials arising under the mechanic's lien laws of the State of New York that may have accrued since the effective date of the commitment; and
(e) Taxes or assessments that are not yet due and payable or that are not shown as existing liens by the records of any taxing authority.
These standard exceptions are expected to be deleted at closing upon delivery by Seller of customary closing deliverables, including a gap indemnity, an affidavit of title in form satisfactory to the title company, and a current ALTA/NSPS survey meeting the requirements of Archer & Towne. C&H has separately confirmed with Philip Moreno at Archer & Towne that the standard survey exception will be deleted upon receipt and acceptance of the ALTA/NSPS survey prepared in connection with the transaction.
In addition, the title commitment requires delivery of a New York City tax search confirming that there are no outstanding real estate tax liens against the Property. Based on our review, the current real estate taxes for the Property are approximately $1,420,000 per annum (Calendar Year 2022), payable in semi-annual installments to the New York City Department of Finance. Current year taxes will be prorated between Seller and PropCo at closing as provided in the PSA.
C. Schedule B-II — Special Exceptions
The title commitment identifies the following special exceptions to title, each of which has been analyzed by C&H in connection with our review:
Exception 1: 1932 Restrictive Covenant Limiting Building Height
The title commitment reflects a restrictive covenant recorded in 1932 limiting the maximum building height on the Property. Our analysis confirms that the existing structure, as originally constructed in 1928 and as renovated in 2017–2018 without modification to the building envelope, is fully compliant with the height limitation set forth in the restrictive covenant. Furthermore, the covenant is consistent with the existing zoning classification for the Property (R8B), which imposes its own height limitation. We have requested that Archer & Towne issue an endorsement affirmatively insuring over this exception, confirming that the existing improvements do not violate the restrictive covenant. Archer & Towne has indicated its willingness to issue such endorsement. Conclusion: Acceptable.
Exception 2: Consolidated Edison Company Utility Easement
The title commitment discloses an easement in favor of Consolidated Edison Company of New York, Inc. for underground conduit running along the eastern property boundary. This is a standard utility easement of the type commonly encountered in New York City real estate transactions and is non-interfering with the existing improvements on the Property, with the exception of a de minimis basement-level encroachment discussed further in Section III below. The easement does not restrict the use, occupancy, or operation of the Property in any material respect. Conclusion: Acceptable.
Exception 3: Existing Mortgage — Meridian Savings Bank, N.A.
The title commitment reflects an existing mortgage lien encumbering the Property in favor of Meridian Savings Bank, N.A. (the "Existing Mortgage"), which secures Seller's existing acquisition and renovation financing. The PSA requires that the Existing Mortgage be satisfied and discharged of record at or prior to closing from Seller's proceeds. A payoff letter from Meridian Savings Bank, N.A. is to be obtained prior to closing, and the Existing Mortgage and related UCC financing statements are to be discharged of record simultaneously with the recording of the deed and the new mortgage in favor of Pinnacle Fidelity. This exception will be removed from the final owner's and lender's title insurance policies upon satisfaction and discharge. Conclusion: To be cleared at closing.
Exception 4: UCC Financing Statements
The title commitment discloses UCC financing statements filed against Seller in connection with the Existing Mortgage. These filings are expected to be terminated at closing in connection with the payoff and discharge of the Existing Mortgage. C&H will confirm that UCC-3 termination statements are filed by or on behalf of Meridian Savings Bank, N.A. at or immediately following closing. Conclusion: To be cleared at closing.
Exception 5: Current Year Real Estate Taxes
The title commitment notes a lien for current year real estate taxes that are not yet due and payable. This is a standard exception and will be addressed through the proration of current year real estate taxes at closing in accordance with the PSA. Conclusion: Standard; to be prorated at closing.
Exception 6: New York City Department of Finance Water and Sewer Charges
The title commitment discloses water and sewer charges assessed by the New York City Department of Finance. Based on our review, these charges are current and not delinquent. Water and sewer charges will be prorated at closing in accordance with the PSA. Conclusion: Standard; to be prorated at closing.
D. Required Endorsements
By separate title and survey review letter transmitted to Philip Moreno at Archer & Towne Title Company in late March 2023, C&H has requested the following affirmative endorsements on behalf of PropCo and Pinnacle Fidelity:
(a) ALTA 3.1 Zoning Endorsement — confirming the current zoning classification of the Property and that the existing use as multifamily residential with ground-floor retail is a permitted use (or legal non-conforming use) under applicable zoning regulations;
(b) Access Endorsement — confirming that the Property has legal and physical access to and from a public right-of-way;
(c) Contiguity Endorsement — confirming that the Property constitutes a single, contiguous parcel (the Property has been confirmed as a single tax lot — Block 899, Lot 42);
(d) Tax Lot Endorsement — confirming that the Property is assessed as a single tax lot for real estate tax purposes;
(e) Comprehensive Endorsement — providing certain additional affirmative coverages relating to encroachments, violations of restrictions, and other matters; and
(f) Lender's Extended Coverage Endorsement — in favor of Pinnacle Fidelity Bank, N.A., providing extended coverage under the lender's title insurance policy.
Archer & Towne has confirmed its willingness to issue all requested endorsements, subject to receipt of a satisfactory ALTA/NSPS survey, a gap affidavit from Seller, and such other customary closing deliverables as the title company may reasonably require.
E. Title Review Conclusion
Based on our review of the title commitment, title is insurable in the proposed insured amounts, subject to the clearance of the Existing Mortgage and related UCC filings at closing. No material title defects have been identified. The special exceptions identified in the title commitment are either standard and routine in nature, will be cleared at closing, or have been determined to be non-interfering with the use and operation of the Property. A separate title and survey review letter has been delivered to Archer & Towne detailing all objections and endorsement requests.
III. SURVEY REVIEW
A. Survey Description
C&H has reviewed an updated ALTA/NSPS Land Title Survey (the "Survey") prepared by a licensed New York State land surveyor in accordance with the 2021 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys, including Table A optional items selected by C&H in consultation with PropCo and Pinnacle Fidelity. The Survey is dated March 2023 and reflects the existing improvements on the Property as of the date of the field work. The Survey has been certified to Gramercy Linden PropCo LLC, Gramercy Linden JV LLC, Pinnacle Fidelity Bank, N.A., and Archer & Towne Title Company, each as parties in interest. A copy of the Survey is attached hereto as Exhibit B.
B. Key Survey Findings
Our review of the Survey has disclosed the following key findings:
(a) Building Footprint and Lot Lines. The building footprint, setbacks, and lot lines as depicted on the Survey are consistent with the legal description contained in the title commitment. The Property is situated on a regularly shaped lot and the improvements are located entirely within the lot lines, with the exception of the de minimis encroachment noted below.
(b) Basement Encroachment into Utility Easement. The Survey reveals that the building encroaches approximately six (6) inches into the eastern utility easement at the basement level. This is a pre-existing condition that predates the 1932 easement instrument in favor of Consolidated Edison. The encroachment does not interfere with the utility infrastructure within the easement area, and there is no indication that Consolidated Edison has ever objected to or sought to enforce the easement against the existing improvements. We have recommended that Archer & Towne issue a title endorsement affirmatively insuring against enforcement of the easement with respect to this encroachment, and Archer & Towne has indicated its willingness to do so.
(c) Adjacent Property Encroachments. The Survey does not disclose any encroachments from adjacent properties onto the Property.
(d) Flood Zone Determination. The Survey includes a flood zone determination indicating that the Property is located in Zone X (area of minimal flood hazard) as designated by the Federal Emergency Management Agency ("FEMA"). No mandatory flood insurance is required under the National Flood Insurance Program, although PropCo may elect to obtain flood coverage on a voluntary basis as part of its overall insurance program.
(e) Single Tax Lot. The Survey confirms that the Property constitutes a single tax lot designated as Block 899, Lot 42 in the Borough of Manhattan.
(f) Access and Curb Cuts. The Survey identifies curb cuts and sidewalk access points along East 21st Street that are consistent with the certificate of occupancy issued by the New York City Department of Buildings. The Property has legal and physical access to a public right-of-way.
C. Survey Open Items
Two survey-related items remain outstanding as of the date of this memorandum:
(a) We have requested that the surveyor provide a final certification with an updated effective date closer to the anticipated closing date, as the current Survey is dated March 2023 and the closing is not expected to occur until June 2023. The updated certification will confirm that no material changes have occurred to the improvements, lot lines, or surrounding conditions since the date of the original Survey.
(b) We are in the process of confirming Archer & Towne's formal acceptance of the Survey for purposes of deleting the standard survey exception from the owner's and lender's title insurance policies. Based on our discussions with Philip Moreno, we anticipate that this acceptance will be forthcoming upon receipt of the updated Survey certification.
IV. ENVIRONMENTAL REVIEW
A. Phase I Environmental Site Assessment
C&H has reviewed a Phase I Environmental Site Assessment ("Phase I ESA") prepared in connection with the proposed acquisition. The report details are as follows:
Report Number: REC-2023-0287
Prepared By: Ridgecrest Environmental Consultants LLC
Lead Consultant: Dr. Karen Ishikawa
Office Address: 14 Wall Street, Suite 600, New York, NY 10005
Report Date: March 28, 2023
Standard: ASTM E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process)
The Phase I ESA was commissioned by PropCo and conducted in accordance with the ASTM E1527-21 standard, which constitutes the industry-accepted methodology for identifying Recognized Environmental Conditions ("RECs") in connection with commercial real estate transactions. The Phase I ESA included, among other things, a review of historical records, regulatory databases, Trelwick fire insurance maps, aerial photographs, prior environmental reports (where available), and a site reconnaissance conducted by Ridgecrest's field team. A copy of the Phase I ESA is attached hereto as Exhibit C.
B. Findings
The principal findings of the Phase I ESA are summarized as follows:
(a) No Recognized Environmental Conditions (RECs) Identified. The Phase I ESA did not identify any RECs in connection with the Property. A REC is defined under the ASTM standard as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property due to a release to the environment, under conditions indicative of a release to the environment, or under conditions that pose a material threat of a future release to the environment.
(b) No Controlled RECs (CRECs) or Historical RECs (HRECs) Identified. The report also concluded that no CRECs (conditions that have been addressed but remain subject to an institutional or engineering control) or HRECs (past releases that have been fully remediated and do not constitute a current condition) are present at the Property.
(c) Historical Use. The historical use review confirmed that the Property has been used for residential purposes since its original construction in 1928. The Phase I ESA found no evidence of prior industrial use, gasoline station operations, dry cleaning operations, or other uses commonly associated with environmental contamination on or adjacent to the Property.
(d) Regulatory Database Review. A review of federal and state regulatory databases, including the EPA's National Priorities List (NPL), CERCLIS database, RCRA database, the New York State Department of Environmental Conservation's Spill Incident database, and other relevant databases, revealed no listings for the Property or immediately adjacent properties that would constitute a concern.
(e) Asbestos and Lead Paint. The 2017–2018 gut renovation included comprehensive asbestos abatement throughout the building. Ridgecrest reviewed the documented clearance certificates from the abatement work, which have been included in the diligence file maintained by C&H. Lead paint abatement in common areas was also completed during the renovation. Individual units were constructed with new materials and are not believed to contain lead-based paint.
(f) Vapor Intrusion Screening. Based on the site history, surrounding land uses, and the absence of any identified contamination sources in the vicinity, vapor intrusion screening was determined not to be indicated for the Property.
(g) Underground Storage Tanks. No underground storage tanks ("USTs") are present on-site, based on a review of available records and the site inspection conducted by Ridgecrest.
C. Environmental Conclusion
Based on the findings of the Phase I ESA, no further environmental investigation is recommended at this time. The Phase I ESA satisfies the environmental due diligence requirements set forth in Pinnacle Fidelity Bank's loan commitment and underwriting guidelines for the senior acquisition loan. As required by the Lender, an environmental indemnity agreement is to be executed by Elliot J. Briarwood as a guarantor in connection with the loan closing documents. The scope and form of the environmental indemnity are currently being negotiated as part of the loan documentation process.
V. ZONING COMPLIANCE REVIEW
A. Zoning Classification
The Property is located in an R8B zoning district (medium-density residential) as designated under the New York City Zoning Resolution. The R8B district permits range residential uses and is characterized by contextual height limits designed to preserve the neighborhood character of the surrounding area. In addition, the Property benefits from a C1-5 commercial overlay on the ground floor, which permits local retail and service establishments within the overlay area.
The current use of the Property — multifamily residential with ground-floor retail — is consistent with the permitted uses under the R8B/C1-5 zoning designation. A zoning analysis summary prepared by C&H is attached hereto as Exhibit D.
B. Non-Conforming Use / Bulk Analysis
The building, originally constructed in 1928, predates the adoption of the current New York City Zoning Resolution (1961) and qualifies as a legal pre-existing non-conforming structure with respect to certain bulk parameters. Specifically:
(a) Floor Area Ratio (FAR). The total built FAR of the Property exceeds the maximum 4.0 FAR permitted under the R8B zoning district by approximately 0.35 FAR. This excess FAR is grandfathered as a lawful pre-existing non-conforming condition, as the building was constructed prior to the adoption of the current zoning resolution and the excess floor area has existed continuously since original construction.
(b) Rear Yard Setback. The rear yard depth of the Property is approximately 25 feet, which is less than the 30-foot minimum rear yard depth required under the current R8B regulations. This deficiency is also grandfathered as a lawful pre-existing non-conforming condition.
(c) 2017–2018 Renovation. The 2017–2018 gut renovation did not increase the floor area of the building or alter the building envelope in any manner. Our review of New York City Department of Buildings ("DOB") records confirms that the renovation permits were issued as Alteration Type 2 permits, which by definition do not involve changes to the building's use, egress, or occupancy classification. Accordingly, the renovation did not trigger a loss of the building's grandfathered non-conforming status with respect to FAR or rear yard setback.
C. Certificate of Occupancy
C&H has reviewed the current Certificate of Occupancy ("C of O") issued by the DOB for the Property. The C of O reflects the following authorized uses:
• 212 dwelling units (residential use)
• Ground-floor retail use
The uses reflected on the C of O are consistent with the actual current uses of the Property. Our review of DOB records also confirms that, as of the date of the diligence period, there are no open DOB violations, complaints, or enforcement actions of record against the Property. A copy of the C of O is attached hereto as Exhibit J.
D. Zoning Conclusion
The Property is a legal pre-existing non-conforming use and bulk with respect to certain dimensional requirements under the R8B zoning district. There are no zoning impediments to the continued operation of the Property as a multifamily residential building with ground-floor retail. We have requested that Archer & Towne Title Company issue an ALTA 3.1 zoning endorsement in connection with the owner's and lender's title insurance policies, as described in Section II.D above.
It should be noted that any future expansion of the building, increase in floor area, or material change of use would require a new zoning analysis and could potentially require a variance or special permit from the New York City Board of Standards and Appeals ("BSA"). PropCo should consult with C&H and a qualified land use attorney prior to undertaking any such project.
VI. LEASE AUDIT
A. Residential Leases
C&H has reviewed the residential lease portfolio for the Property, which consists of 212 residential units comprising a mix of studio, one-bedroom, two-bedroom, and three-bedroom apartments. The following summarizes the key findings of our residential lease audit:
(a) Lease Forms. All residential leases reviewed are on a standard-form lease approved by Briarwood and consistent with the requirements of New York Real Property Law. The leases contain customary provisions regarding term, rent, security deposit, maintenance obligations, default, and remedies.
(b) Lease Terms. The residential leases are predominantly twelve (12) month leases with month-to-month holdover provisions. Lease expiration dates are staggered throughout the calendar year, providing a diversified rollover schedule.
(c) Current Occupancy. As of the January 2023 rent roll provided by Seller, the Property has a current occupancy rate of 96.2%, with approximately 204 of the 212 residential units occupied. Eight (8) units are currently vacant, representing a vacancy rate of 3.8%, which is consistent with the market for Class A multifamily properties in the Gramercy Park submarket.
(d) Gross Potential Rent. The Gross Potential Rent for the residential units for Calendar Year 2022 was $5,680,000. A copy of the January 2023 rent roll is attached hereto as Exhibit E.
(e) Rent Stabilization. We have conducted a rent stabilization analysis and confirmed that none of the 212 residential units are subject to rent stabilization. The 2017–2018 gut renovation qualified the building for luxury decontrol treatment under the applicable provisions of the Housing Stability and Tenant Protection Act of 2019 and its predecessor statutes. All units are leased at market-rate rents, and no rent regulatory filings (DHCR registrations) are applicable to the Property.
(f) Non-Standard Provisions. Our review did not identify any residential lease that contains a right of first refusal, purchase option, or other non-standard provision that would adversely affect the acquisition or PropCo's ability to operate the Property post-closing.
(g) Security Deposits. Aggregate residential security deposits held by Seller are estimated at approximately $480,000. Pursuant to the PSA, all security deposits are to be assigned and transferred to PropCo at closing, together with any accrued interest thereon, in compliance with New York General Obligations Law Section 7-103.
B. Retail Leases
The Property includes two (2) ground-floor retail units with a combined area of approximately 4,800 square feet. C&H has reviewed both retail leases in detail, and abstracts of each lease are attached hereto as Exhibit F. The key terms of each retail lease are summarized below:
Retail Tenant 1: Specialty Coffee Shop
Tenant: [Name redacted for purposes of this memorandum]
Premises: Ground-floor retail unit (approximately 2,600 square feet)
Lease Term: Through December 2027
Base Rent: $216,000 per annum ($18,000 per month)
Escalations: 3% annual increases
Expense Pass-Throughs: Tenant is responsible for payment of its proportionate share of real estate tax increases above a base year of 2019, as well as its proportionate share of insurance increases and CAM charges (triple-net-lite structure)
Status: No defaults or outstanding landlord obligations noted
Retail Tenant 2: Boutique Dry Goods / Grocery
Tenant: [Name redacted for purposes of this memorandum]
Premises: Ground-floor retail unit (approximately 2,200 square feet)
Lease Term: Through March 2026
Base Rent: $168,000 per annum ($14,000 per month)
Escalations: 2.5% annual increases
Expense Pass-Throughs: Tenant is responsible for payment of its proportionate share of real estate tax increases above a base year of 2019, as well as its proportionate share of insurance increases and CAM charges (triple-net-lite structure)
Status: No defaults or outstanding landlord obligations noted
The combined Gross Potential Rent for the two retail units for Calendar Year 2022 was $384,000. Both retail leases are structured on a triple-net-lite basis, whereby each tenant pays its proportionate share of real estate tax increases, insurance increases, and common area maintenance ("CAM") charges above specified base year amounts. The triple-net-lite structure provides PropCo with a degree of expense pass-through protection against future increases in operating costs attributable to the retail space.
Estoppel Certificates. The PSA requires delivery of tenant estoppel certificates from all retail tenants as a condition to closing. The estoppel certificate from Retail Tenant 1 has been received, reviewed, and confirmed to be consistent with the terms of the applicable lease. The estoppel certificate from Retail Tenant 2 has not yet been received and is identified as an open item for pre-closing resolution (see Section X below).
C. Other Income
In addition to residential and retail rental income, the Property generates other income from the following sources, which totaled approximately $142,000 for Calendar Year 2022:
(a) Laundry Room Revenue. Laundry facilities are operated under a third-party concession agreement with Parkview Laundry Services LLC. C&H has reviewed the concession agreement and notes that it is terminable by either party upon ninety (90) days' written notice. The agreement does not contain any assignment restrictions that would impede the transfer of the agreement to PropCo in connection with the closing.
(b) Parking Revenue. The Property has a limited number of parking spaces that generate ancillary income on a month-to-month basis.
(c) Late Fees and Application Fees. The Property collects late fees from tenants who fail to pay rent on time and application fees from prospective tenants.
D. Lease Audit Conclusion
The lease portfolio is consistent with Seller's representations in the PSA and with the underwriting assumptions utilized by Briarwood in connection with the acquisition. The financial summary derived from the lease audit is as follows:
We recommend that the Retail Tenant 2 estoppel certificate be obtained prior to closing and that C&H review the same upon receipt to confirm consistency with the applicable lease terms.
VII. ORGANIZATIONAL DOCUMENT REVIEW — SELLER
A. Seller Entity
C&H has reviewed the organizational documents of the Seller. The Seller entity is identified as follows:
Name: Linden Gramercy Holdings LLC
Jurisdiction: New York
Type: Limited Liability Company
EIN: 20-6438172
Principal Office: 575 Lexington Avenue, 10th Floor, New York, NY 10022
Managing Member: Marcus Steinfeld
Structure: Single-asset holding entity owned by the Steinfeld family
Seller's Counsel: Reedmore & Pratt LLP (lead partner: David Ochoa; office: 575 Madison Avenue, 20th Floor, New York, NY 10022)
Linden Gramercy Holdings LLC is a single-asset entity formed for the purpose of holding title to the Property. The entity is wholly owned by members of the Steinfeld family, with Marcus Steinfeld serving as the sole Managing Member.
B. Authority and Good Standing
C&H has obtained and reviewed a Certificate of Good Standing issued by the New York Secretary of State, confirming that Linden Gramercy Holdings LLC is in good standing and authorized to transact business in the State of New York as of the date of the certificate.
C&H has also reviewed the operating agreement of the Seller. Pursuant to the terms of the operating agreement, Marcus Steinfeld, as Managing Member, possesses full authority to execute and deliver the PSA, all closing documents, and all ancillary instruments required in connection with the sale of the Property, and to bind the Seller in connection therewith, without the consent or approval of any other member. No additional consents from any partner, member, lender, or governmental authority are required for the consummation of the sale, other than the payoff and discharge of the Existing Mortgage, which is being coordinated as a closing deliverable.
C. Existing Debt
The Property is currently encumbered by an existing mortgage loan from Meridian Savings Bank, N.A. The original principal amount of the loan is not disclosed in the documents reviewed by C&H; however, based on Seller's representations, the current outstanding balance is estimated at approximately $12,000,000. A payoff letter from Meridian Savings Bank, N.A. is to be obtained prior to closing, and the Existing Mortgage and all related UCC financing statements are to be satisfied and discharged of record at closing from Seller's proceeds.
Our review has not identified any mezzanine debt, preferred equity interests, or other encumbrances affecting the Property or the Seller's interest therein, beyond the Existing Mortgage and related UCC filings.
D. FIRPTA Compliance
Section 1445 of the Internal Revenue Code requires that a buyer withhold a percentage of the purchase price when acquiring real property from a foreign person or entity, unless the seller delivers a certificate of non-foreign status confirming that the seller is not a "foreign person" as defined under the Code. The PSA requires Seller to deliver a FIRPTA certificate of non-foreign status at closing, and Seller has confirmed its intent to comply with this requirement. Delivery of the executed FIRPTA certificate remains an open item pending closing.
A copy of the Seller's organizational documents is attached hereto as Exhibit I.
VIII. PROPERTY CONDITION AND INSURANCE
A. Property Condition
The Property was originally constructed in 1928 and underwent a comprehensive gut renovation during the period of 2017–2018 at a cost of approximately $8.2 million, based on Seller's representations. The scope of the renovation included, without limitation:
(a) Full replacement of mechanical, electrical, and plumbing ("MEP") systems throughout the building;
(b) Installation of new windows throughout the building;
(c) Complete roof replacement (modified bitumen roofing system, installed 2018, with a 20-year manufacturer's warranty);
(d) Elevator modernization — two (2) passenger elevators serving all floors;
(e) Renovation of the lobby and all common areas; and
(f) Individual unit build-outs with high-end finishes, including new kitchens, bathrooms, flooring, lighting, and fixtures.
No independent property condition report ("PCR") was commissioned by PropCo for this transaction. However, Briarwood's in-house construction team, led by its Director of Construction, conducted a comprehensive walk-through inspection of the Property in March 2023. The inspection covered all major building systems, common areas, a representative sample of individual residential units, the retail spaces, the roof, the basement mechanical rooms, and the building exterior. Based on the results of the walk-through, Briarwood's construction team identified no material deferred maintenance items or structural concerns. Building systems, including HVAC, plumbing, and electrical, are approximately five to six (5–6) years old and are reported to be in good operating condition.
The modified bitumen roofing system, installed in 2018, is covered by a 20-year manufacturer's warranty. No leaks or water infiltration issues have been reported by Seller or identified during the walk-through inspection. The two passenger elevators were modernized during the 2017–2018 renovation and are in compliance with New York City Department of Buildings elevator inspection requirements.
B. Insurance Review
C&H has reviewed the current insurance program maintained by Seller for the Property. The existing policies will terminate upon the sale of the Property, and PropCo's insurance program is to be placed through Beacon Meridian Insurance Group, as broker, in advance of closing. The relevant insurance details for the post-closing program are as follows:
Insurance Broker: Beacon Meridian Insurance Group (broker of record: Alan Fitzpatrick; office: 100 William Street, Suite 1200, New York, NY 10038)
Property Insurance Carrier (Post-Closing): Northern Continental Assurance Company
General Liability Carrier (Post-Closing): Consolidated Mutual Indemnity Co.
C&H has reviewed the insurance requirements set forth in the Pinnacle Fidelity loan commitment and related loan documents and has confirmed that the proposed post-closing insurance program is expected to satisfy all Lender requirements. Pinnacle Fidelity Bank, N.A. is to be named as mortgagee and additional insured/loss payee on the property insurance policy, and as additional insured on the general liability policy. Insurance binders evidencing the required coverages, limits, and endorsements are to be delivered to Pinnacle Fidelity at closing. The placement of insurance binders is identified as a pre-closing deliverable in Section X below.
C. Property Management
Post-closing property management of the Property will be handled by Summit Property Group LLC, a third-party property management firm experienced in the management of Class A multifamily properties in the New York City metropolitan area.
Property Manager: Summit Property Group LLC
Contact: Diana Castillo, Senior Vice President
Office Address: 315 West 36th Street, 4th Floor, New York, NY 10018
Management Fee: 3.5% of Effective Gross Revenue