1026-00004 · Client in this engagement is Briarwood Family Office LLC · Transaction Documents

jv-term-sheet-memorandum.docx DOCUMENT Real Estate

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION

MEMORANDUM

FROM: Angela Fontaine, Partner, and Grace Nakamura, Associate Calderwood & Harkness LLP 280 Park Avenue New York, NY 10017

TO: Elliot J. Briarwood, Founder & Managing Principal Briarwood Family Office LLC 450 Park Avenue, 31st Floor New York, NY 10022

DATE: February 22, 2023

RE: Proposed Economic and Governance Terms — Gramercy Linden JV LLC (Club-Deal Joint Venture for Acquisition of The Linden at Gramercy Park)

MATTER NO.: 1026-00004

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I. EXECUTIVE SUMMARY

Calderwood & Harkness LLP has been engaged, pursuant to the retainer agreement executed on February 8, 2023, to represent Briarwood Family Office LLC ("Briarwood" or the "Client") in connection with the formation and negotiation of a club-deal joint venture to acquire The Linden at Gramercy Park (the "Property"), a 212-unit Class A multifamily residential property located at 245 East 21st Street, New York, NY 10010 (Block 899, Lot 42, Borough of Manhattan). The transaction presents a compelling opportunity for Briarwood to serve as the Managing Member of a well-capitalized joint venture acquiring a premium, gut-renovated multifamily asset in one of Manhattan's most desirable residential submarkets.

The joint venture entity will be Gramercy Linden JV LLC ("GLJV" or the "JV Entity"), organized as a Delaware limited liability company. GLJV will hold the Property through a wholly owned subsidiary, Gramercy Linden PropCo LLC ("PropCo"), a New York limited liability company. PropCo will serve as the direct title holder to the Property and will be the borrower under the senior acquisition financing to be provided by Pinnacle Fidelity Bank, N.A. This two-tier structure is standard for real estate joint ventures and provides both liability insulation at the JV level and compliance with lender requirements for a single-asset, special-purpose borrower at the PropCo level.

The proposed co-investors in the joint venture are:

(a) Cedarpoint Capital Partners LLC ("Cedarpoint"), a Delaware limited liability company headquartered at 200 Ashbury Asset Advisors, Suite 1400, Boston, MA 02109. Cedarpoint is co-managed by Jonathan Hu and Priya Raghavan and manages approximately $1.1 billion in assets under management, focused primarily on value-add multifamily and industrial real estate. Cedarpoint has completed 38 prior multifamily transactions totaling approximately $3.4 billion in aggregate transaction value across major U.S. markets.

(b) Halcyon Ridge Investments LP ("Halcyon Ridge"), a Delaware limited partnership with its general partner being Halcyon Ridge GP LLC. Halcyon Ridge is headquartered at 1700 Market Street, Suite 2200, Philadelphia, PA 19103, and is led by managing partner Garrett Ellison. The firm manages approximately $680 million in assets under management, with a particular focus on urban multifamily and mixed-use properties in the Northeast and Mid-Atlantic corridors.

Cedarpoint and Halcyon Ridge are jointly represented in this transaction by Whitfield Archer & Crane LLP, located at One Federal Street, Suite 3600, Boston, MA 02110, with lead partner Nadia Kowalski and associate Thomas Greenbaum serving as their primary counsel.

The purpose of this memorandum is threefold: (1) to summarize the proposed economic and governance terms of the joint venture as reflected in the preliminary term sheet discussions to date; (2) to analyze the key provisions and identify potential areas of negotiation; and (3) to recommend specific negotiation positions for Briarwood in its capacity as the Managing Member and the largest single equity contributor to the venture.

The total capitalization for the acquisition is $40,000,000, consisting of a senior loan of $26,000,000 from Pinnacle Fidelity Bank, N.A. (representing a 65% loan-to-value ratio) and total equity contributions of $14,000,000 from the three Members. Briarwood will contribute $7,000,000, representing a 50% equity interest and making it the single largest equity contributor. In addition to its role as Managing Member and asset manager, Briarwood — and specifically Elliot J. Briarwood individually — will serve as the guarantor on the non-recourse carveout guaranty required by the senior lender, a responsibility that creates meaningful personal exposure and that, as we discuss further below, must be carefully addressed in the joint venture documentation.

This memorandum addresses each of the material economic and governance terms in detail and concludes with a summary of our recommended negotiation positions and proposed next steps for advancing the transaction.

II. TRANSACTION OVERVIEW

A. The Property

The Linden at Gramercy Park is a 212-unit Class A multifamily residential building with two ground-floor retail units comprising approximately 4,800 square feet of combined retail space. The Property is located at 245 East 21st Street, New York, NY 10010, situated in one of Manhattan's most sought-after residential neighborhoods, directly adjacent to the private Gramercy Park. The Property is identified on the City's tax maps as Block 899, Lot 42, Borough of Manhattan.

The building was originally constructed in 1928 and underwent a comprehensive gut renovation between 2017 and 2018, at an estimated renovation cost of approximately $8.2 million funded by the current Seller. The renovation program included full modernization of building systems (HVAC, plumbing, electrical), replacement of all unit finishes and fixtures, installation of a new elevator cab and modernized elevator controls, new common area finishes including a renovated lobby and fitness center, and remediation of any outstanding code violations. As a result, the Property presents as a substantially "like-new" Class A product despite its pre-war structural characteristics, which themselves command a premium in the Gramercy submarket.

The Property has a gross building area of approximately 187,400 square feet. The residential unit mix comprises studios, one-bedroom, two-bedroom, and three-bedroom apartments, providing diversity in the tenant base and exposure to multiple rent tiers within the neighborhood. Current occupancy, as reported in the January 2023 rent roll provided by the Seller, stands at 96.2%, reflecting strong market demand and the Property's competitive positioning within the Gramercy Park submarket.

The Seller is Linden Gramercy Holdings LLC, a New York limited liability company with Marcus Steinfeld serving as managing member. Linden Gramercy Holdings LLC is a single-asset holding entity that acquired the Property in 2005 for approximately $18.5 million. The Seller is represented by Reedmore & Pratt LLP, with David Ochoa, Partner, serving as lead counsel, located at 575 Madison Avenue, 20th Floor, New York, NY 10022.

B. Capitalization Summary

The capitalization for the acquisition is structured as follows:

Purchase Price. The negotiated purchase price for the Property is $40,000,000, which is a fixed amount and is not subject to adjustment. This price represents a going-in capitalization rate of 5.60% based on trailing twelve-month net operating income, and a pro forma capitalization rate of 6.30% based on the Year 1 stabilized pro forma underwriting prepared by Briarwood's internal team.

Senior Loan. The acquisition will be financed with a senior mortgage loan of $26,000,000 from Pinnacle Fidelity Bank, N.A. (383 Madison Avenue, New York, NY 10179), with Sandra Kim, Vice President, CRE Lending, serving as the designated loan officer. The key terms of the senior loan are as follows:

• Loan amount: $26,000,000

• Loan-to-value ratio: 65.0%

• Interest rate: SOFR + 215 basis points, with a 3.00% SOFR floor

• Loan term: 5 years (maturing approximately June 2028, assuming a June 2023 closing)

• Amortization: 24-month interest-only period, followed by a 30-year amortization schedule

• Extension options: 2 × 1-year extension options (subject to satisfaction of conditions to be negotiated)

• Guaranty: Non-recourse carveout guaranty required from Elliot J. Briarwood individually

Total Equity. The total equity required to close the acquisition is $14,000,000, calculated as the difference between the $40,000,000 purchase price and the $26,000,000 senior loan. As set forth in greater detail in Section III below, the equity will be contributed by the three Members in proportion to their agreed Percentage Interests: Briarwood at 50%, Cedarpoint at 30%, and Halcyon Ridge at 20%.

Appraised Value. The Property was appraised at $41,200,000 by Greystone Appraisal Associates LLC, in an appraisal dated February 15, 2023 (file number GAA-2023-NY-1148), prepared by lead appraiser Helen Vasquez, MAI. The appraised value exceeds the purchase price by $1,200,000, or approximately 3.0%, which provides a modest built-in equity cushion at acquisition.

Earnest Money Deposit. An earnest money deposit of $2,000,000 (representing 5% of the purchase price) will be delivered in connection with the execution of the purchase and sale agreement. The deposit will be held in escrow by Archer & Towne Title Company, with Philip Moreno serving as the designated title officer. As discussed further in Section III, we recommend that this deposit be funded initially by Briarwood and credited against Briarwood's capital contribution at closing.

Estimated Closing Costs. We estimate total closing costs of approximately $1,850,000, inclusive of the following:

These closing costs will be funded by the Members pro rata to their Percentage Interests as additional capital contributions, as described in Section III below.

C. Property Financial Highlights

Based on our review of the Seller's trailing twelve-month operating statements and the preliminary underwriting prepared by Briarwood's internal team, the Property's financial profile is summarized as follows:

In-Place Net Operating Income (T-12, Calendar Year 2022): $2,240,000

Going-In Capitalization Rate (In-Place): 5.60% ($2,240,000 ÷ $40,000,000). This going-in cap rate is consistent with recent transactions for comparable Class A multifamily properties in Manhattan's core neighborhoods, where cap rates have generally ranged between 5.25% and 6.00% over the past twelve months.

Stabilized Pro Forma NOI (Year 1): $2,520,000. The pro forma underwriting assumes moderate rent increases on lease renewals, a reduction in vacancy to approximately 3.0%, and stabilized operating expenses reflecting full management under Summit Property Group LLC.

Pro Forma Capitalization Rate: 6.30% ($2,520,000 ÷ $40,000,000). The upside from in-place NOI to stabilized NOI is approximately $280,000, driven primarily by the anticipated rent growth and modest vacancy reduction, and represents a reasonable and achievable business plan.

D. JV Structure

The joint venture will be organized in a two-tier structure that is standard for leveraged real estate acquisitions of this nature. The structure is as follows:

Top Tier — Gramercy Linden JV LLC (Delaware LLC). The JV Entity will be organized as a Delaware limited liability company with three Members: Briarwood Family Office LLC (Managing Member, 50%), Cedarpoint Capital Partners LLC (Member, 30%), and Halcyon Ridge Investments LP (Member, 20%). The JV Entity will serve as the investment vehicle through which all economic interests are held and all governance decisions are made.

Bottom Tier — Gramercy Linden PropCo LLC (New York LLC). PropCo will be organized as a New York limited liability company and will be wholly owned by the JV Entity. PropCo will serve as the direct title holder to the Property and as the borrower under the senior acquisition loan from Pinnacle Fidelity Bank, N.A. PropCo will be structured as a single-purpose, bankruptcy-remote entity as required by the senior lender, with customary SPE covenants in its operating agreement and organizational documents.

This two-tier structure provides several benefits: (i) it isolates the Property and the senior loan at the PropCo level, limiting the recourse of the lender and third parties to the assets of PropCo; (ii) it satisfies the lender's requirement for a single-purpose borrower; (iii) it facilitates potential future restructuring, refinancing, or disposition at either the entity level (through a transfer of PropCo interests) or the asset level (through a direct property sale); and (iv) it provides flexibility for tax planning purposes.

III. EQUITY STRUCTURE

A. Member Contributions and Percentage Interests

The equity contributions and corresponding Percentage Interests of each Member are as follows:

All capital contributions are to be funded at closing. The funding of each Member's full capital contribution will be a condition precedent to closing under the JV Operating Agreement, meaning that no Member may close unless all Members have simultaneously funded their respective contributions. This closing condition is standard and ensures that no Member bears a disproportionate funding risk at the time of acquisition.

In addition to the equity contributions set forth above, closing costs estimated at $1,850,000 will be funded by the Members pro rata to their Percentage Interests as additional capital contributions. The closing cost allocations are as follows:

• Briarwood Family Office LLC (50%): $925,000

• Cedarpoint Capital Partners LLC (30%): $555,000

• Halcyon Ridge Investments LP (20%): $370,000

Accordingly, Briarwood's total funding obligation at closing will be $7,925,000 ($7,000,000 equity contribution plus $925,000 pro rata share of closing costs), subject to credit for the $2,000,000 earnest money deposit previously funded.

With respect to the earnest money deposit, we note that the $2,000,000 deposit will be funded initially and solely by Briarwood in connection with the execution of the purchase and sale agreement. At closing, this deposit will be credited against Briarwood's capital contribution, reducing Briarwood's net funding at closing to $5,925,000. We recommend that the Operating Agreement expressly confirm this credit and characterize the earnest money deposit as a capital contribution by Briarwood from and after the date it is funded, such that Briarwood begins accruing preferred return on the deposit amount from the date of its funding rather than from the closing date.

B. Recommendation on Equity Structure

Briarwood's 50% equity interest appropriately reflects its multifaceted role in the venture. As the largest single equity contributor, the Managing Member, the day-to-day asset manager, and the personal guarantor on the senior loan, Briarwood's position at 50% is proportionate to the scope of its responsibilities and the magnitude of its risk exposure. The equity allocation also ensures that Briarwood holds a meaningful governance position — while not sufficient to unilaterally approve the annual budget (which requires a Majority-in-Interest, as discussed in Section VI below), the 50% interest ensures that no Major Decision or budget can be approved without Briarwood's concurrence.

We recommend confirming in the Operating Agreement that the earnest money deposit is expressly treated as a capital contribution by Briarwood, with full credit against Briarwood's closing capital contribution and preferred return accrual from the date the deposit is funded. This is a straightforward provision that should not engender significant opposition from the co-investors.

Based on our discussions with Briarwood's team and our preliminary communications with Whitfield Archer & Crane LLP, we do not anticipate significant pushback from the co-investors on the percentage allocation. These splits were agreed in principle at the letter of intent stage, and both Cedarpoint and Halcyon Ridge have confirmed their commitment to the agreed allocations.

IV. DISTRIBUTION WATERFALL

A. Proposed Five-Tier Waterfall

The distribution waterfall governs the allocation of distributable cash flow from operations and capital event proceeds (i.e., proceeds from a sale, refinancing, or other capital event) among the Members. The proposed waterfall comprises five tiers, structured to prioritize the return of contributed capital and a preferred return to all Members before allocating promote distributions to Briarwood as Managing Member. The tiers are as follows:

Tier 1 — Return of Capital. All distributable cash flow and capital event proceeds shall first be distributed to the Members pro rata in proportion to their respective Percentage Interests until each Member has received cumulative distributions equal to the full amount of its unreturned capital contributions (including both the initial equity contribution and any additional capital contributions for closing costs or subsequent capital calls). This tier ensures that no Member receives promote or incentive distributions until all Members have been made whole on their invested capital.

Tier 2 — Preferred Return. After satisfaction of Tier 1, all distributable cash flow and capital event proceeds shall be distributed to the Members pro rata in proportion to their respective Percentage Interests until each Member has received cumulative distributions (in excess of its capital return under Tier 1) equal to an 8.0% per annum cumulative, non-compounding preferred return on its unreturned capital contributions. The preferred return accrues from the date each capital contribution is funded and continues to accrue on any unreturned capital balance.

It is important to note the distinction between "cumulative" and "non-compounding" in this context. The preferred return is "cumulative," meaning that if distributable cash flow in any given period is insufficient to pay the full preferred return, the unpaid amount accrues and must be satisfied in full before any distributions are made under Tiers 3, 4, or 5. The preferred return is "non-compounding," meaning that the 8.0% per annum rate is calculated solely on the original unreturned capital contributions — accrued but unpaid preferred return does not itself earn additional preferred return. This is a standard formulation in institutional real estate joint ventures.

Tier 3 — Catch-Up. After satisfaction of Tiers 1 and 2, distributable cash flow and capital event proceeds shall be distributed 60% to Briarwood (in its capacity as Managing Member, as a promote distribution) and 40% to all Members pro rata in proportion to their Percentage Interests, until Briarwood has received cumulative promote distributions equal to 20% of all cumulative profits distributed above the preferred return (i.e., distributions in excess of those allocated under Tiers 1 and 2). This catch-up tier is designed to accelerate Briarwood's receipt of its promote share, bringing Briarwood's aggregate promote to a 20% participation in profits above the preferred return hurdle before transitioning to the next tier.

Tier 4 — Above 12% IRR Hurdle. After all Members have achieved a 12% internal rate of return ("IRR") on their aggregate equity contributions (measured on the basis of actual dates of capital contributions and distributions using XIRR methodology), all subsequent distributable cash flow and capital event proceeds shall be distributed 80% to all Members pro rata in proportion to their Percentage Interests and 20% to Briarwood as a Managing Member promote distribution. The 12% IRR is calculated on the aggregate equity contributions and distributions to all Members collectively, not on a member-by-member basis. This aggregate approach simplifies the calculation and avoids disparities that could arise from differing funding dates or interim distributions.

Tier 5 — Above 18% IRR Hurdle. After all Members have achieved an 18% IRR on their aggregate equity contributions (calculated using the same XIRR methodology), all subsequent distributable cash flow and capital event proceeds shall be distributed 70% to all Members pro rata in proportion to their Percentage Interests and 30% to Briarwood as a Managing Member promote distribution. This top-tier promote reflects the enhanced incentive for Briarwood in scenarios where the venture significantly outperforms underwriting.

B. Analysis and Negotiation Recommendations on Waterfall

The proposed waterfall structure is well within market parameters for Class A multifamily joint ventures in gateway markets. Based on our review of comparable club-deal joint venture terms from recent Calderwood & Harkness transactions (see Appendix D for anonymized benchmarking data), we offer the following analysis and recommendations:

Preferred Return (8.0%). The 8.0% cumulative, non-compounding preferred return is consistent with the prevailing market range of 7.0% to 9.0% for Class A multifamily acquisitions in major metropolitan markets. Given the quality of the Property (a gut-renovated, 96.2% occupied building in Gramercy Park), the 24-month interest-only period on the senior loan (which enhances initial cash-on-cash returns and provides a cushion for preferred return coverage), and the general stability of the Gramercy submarket, we believe 8.0% is appropriate. We anticipate that co-investors — particularly Cedarpoint, which has historically operated in value-add strategies with somewhat higher return expectations — may push for a 9.0% preferred return. We recommend holding firm at 8.0% and, if necessary, pointing to the interest-only period and the strong in-place occupancy as mitigating factors that reduce the risk of a preferred return shortfall.

Catch-Up Mechanism (Tier 3). The 60/40 catch-up split is favorable to Briarwood and somewhat aggressive relative to the 50/50 catch-up that is more commonly seen in institutional joint ventures where the managing member's promote is in the 20% range. We anticipate that Whitfield Archer & Crane LLP, on behalf of Cedarpoint and Halcyon Ridge, will push to narrow the catch-up to a 50/50 split. We recommend defending the 60/40 structure in initial negotiations but are prepared to accept 55/45 as a fallback if necessary to reach agreement on the overall package. The difference between 60/40 and 55/45 is modest in absolute dollar terms but signals Briarwood's priority in the economics of the deal.

IRR Hurdles (12% and 18%). The 12% and 18% IRR hurdles are standard for multifamily joint ventures in this size range. The corresponding 80/20 and 70/30 splits at Tiers 4 and 5 are in line with market for a managing member/operator promote structure and are unlikely to face significant resistance.

Promote Clawback. We expect the co-investors to request the inclusion of a clawback mechanism applicable to promote distributions at capital events. The purpose of a clawback is to ensure that cumulative distributions over the life of the investment are consistent with the waterfall when calculated on a look-back basis — that is, if interim distributions resulted in Briarwood receiving promote amounts that, when recalculated at the time of a capital event, exceed what Briarwood would have been entitled to receive, Briarwood would be obligated to return the excess. We recommend accepting a clawback provision, subject to two important limitations: (i) the clawback should be subject to a reasonable lookback period of no more than 12 months (i.e., the clawback applies only to promote distributions received within the 12 months preceding the capital event), and (ii) the maximum clawback amount should be capped at the aggregate promote distributions actually received by Briarwood, net of taxes paid on such distributions.

IRR Calculation Methodology. All IRR calculations should be specified in the Operating Agreement to use actual dates of capital contributions and distributions, consistent with the XIRR methodology. The definition of "IRR" and the computational mechanics (including the treatment of reserves, working capital, and tax distributions) should be carefully defined in the Operating Agreement to avoid ambiguity and potential disputes.

Preferred Return Accrual Date. We recommend including a clear provision that the preferred return begins accruing on the date each capital contribution is funded. For initial contributions made at closing (anticipated to be in June 2023), the accrual commencement date will be the closing date. For the earnest money deposit funded by Briarwood prior to closing, preferred return should accrue from the date the deposit is funded.

V. MANAGEMENT AND FEES

A. Managing Member Role and Duties

Briarwood will be designated as the Managing Member of Gramercy Linden JV LLC. In this capacity, Briarwood will have primary responsibility for the oversight and management of the Property and the operations of the JV, subject to the governance limitations established in the Operating Agreement (including the Major Decision consent requirements discussed in Section VI below).

Briarwood's duties as Managing Member will include, without limitation:

(a) overseeing all aspects of property operations, including leasing, tenant relations, and building maintenance;

(b) managing the relationship with the Property Manager (Summit Property Group LLC), including monitoring performance, reviewing monthly operating reports, and ensuring compliance with the property management agreement;

(c) preparing and submitting annual operating and capital budgets to the Members for approval in accordance with the budget approval process described in Section VI.C;

(d) coordinating with the senior lender, Pinnacle Fidelity Bank, N.A., on all matters related to the senior loan, including compliance with financial covenants (DSCR minimum of 1.25x, LTV maximum of 70%), timely delivery of required reporting packages, and management of any lender consent requirements;

(e) overseeing capital improvement programs and directing the implementation of approved capital expenditures within the scope of the approved budget;

(f) managing and directing the eventual disposition or refinancing of the Property, subject to the Major Decision approval requirements; and

(g) such other duties as are customarily performed by a managing member of a real estate joint venture of this nature.

B. Asset Management Fee

In consideration of its services as Managing Member and asset manager, Briarwood will receive an asset management fee equal to 1.0% of Effective Gross Revenue ("EGR") per annum. The fee will be payable monthly in arrears and will be treated as an operating expense of the JV Entity — that is, it will be deducted from gross revenue before the determination of distributable cash flow. This characterization ensures that the asset management fee is senior to all distributions to Members, including distributions under the preferred return tier of the waterfall.

Based on the Property's calendar year 2022 Effective Gross Revenue of approximately $5,975,568 (see Section II.C), the estimated Year 1 asset management fee would be approximately $59,756. As EGR grows through rent increases and occupancy optimization, the fee will correspondingly increase, providing Briarwood with an incentive that is aligned with the revenue performance of the Property.

Recommendation. We anticipate that co-investors may resist the 1.0% EGR fee and propose a reduced rate of 0.75%, or alternatively may seek to subordinate the fee to the preferred return in the distribution waterfall — meaning the fee would be payable only to the extent there is positive cash flow after debt service and preferred return distributions. We recommend holding at the 1.0% rate, which is consistent with market norms for managing member asset management fees in Class A multifamily joint ventures. If necessary to secure the 1.0% rate, we are prepared to offer subordination of the asset management fee to the preferred return as a concession. In practical terms, given the Property's strong cash flow profile and the 24-month interest-only period, we do not anticipate that subordination would result in any actual deferral of the fee during the projected hold period, making it a low-cost concession that may satisfy the co-investors' concern without materially affecting Briarwood's economics.

C. Property Management

Day-to-day property management of the Property will be performed by Summit Property Group LLC ("Summit"), located at 315 West 36th Street, 4th Floor, New York, NY 10018. The primary contact at Summit is Diana Castillo, Senior Vice President. Summit is an experienced third-party property management firm with a significant portfolio of Class A multifamily properties in the New York metropolitan area.

The property management fee will be 3.5% of Effective Gross Revenue, which is within the standard range for third-party management of a multifamily property of this size and quality in New York City. The property management agreement will be between PropCo and Summit, and will be subject to the terms and conditions negotiated by Briarwood in consultation with the co-investors.

We anticipate that co-investors will request that the selection and replacement of the Property Manager be designated as a Major Decision requiring unanimous consent of all Members. This request is reasonable and consistent with customary practice in club-deal joint ventures, and we recommend accepting it as a governance concession. As noted in Section XVI below, we have included the addition of property manager selection and replacement to the Major Decisions list as a concession we are prepared to offer.

D. Accounting and Tax

Tax structuring, compliance, and K-1 preparation for the JV Entity and PropCo will be handled by Kessler Whitmore & Co. LLP, a nationally recognized accounting and tax advisory firm. The primary contact is Robert Nwosu, CPA, Partner, Real Estate Tax Group, located at 1185 Avenue of the Americas, 22nd Floor, New York, NY 10036. Mr. Nwosu has extensive experience advising real estate joint ventures on partnership tax matters and has previously worked with Briarwood on other investments.

Briarwood will serve as the Tax Matters Partner of the JV Entity. Under the Bipartisan Budget Act of 2015 ("BBA") centralized partnership audit regime (applicable to partnership tax years beginning after December 31, 2017), this role is more accurately described as the "Partnership Representative." As Partnership Representative, Briarwood will have the authority to act on behalf of the partnership in any IRS audit proceedings, and all members will be bound by actions taken by the Partnership Representative. We recommend that the Operating Agreement include customary provisions governing the Partnership Representative's authority, including a requirement to notify all Members of any audit proceedings, an obligation to consult with Members before agreeing to any material tax adjustments, and a right for Members to elect into the "push-out" election under Section 6226 of the Internal Revenue Code in lieu of paying any imputed underpayment at the partnership level.

The fiscal year of the JV Entity will be the calendar year, consistent with the tax years of the individual Members and their beneficial owners.

We further recommend including tax distribution provisions in the Operating Agreement requiring the JV Entity to make minimum quarterly distributions to the Members in amounts sufficient to cover each Member's estimated federal, state, and local income tax liabilities arising from the Member's allocable share of the JV Entity's taxable income. These tax distributions are particularly important during the 24-month interest-only period, when cash-on-cash returns may be sufficient to cover the preferred return but distributable cash flow after reserves may be limited, potentially resulting in phantom income to the Members (i.e., taxable income allocated to a Member in excess of cash distributions received).

VI. GOVERNANCE AND MAJOR DECISIONS

A. Major Decision Consent Threshold

As is customary in club-deal joint ventures, certain significant actions and decisions will be designated as "Major Decisions" and will require the unanimous consent of all Members — Briarwood, Cedarpoint, and Halcyon Ridge. The unanimous consent requirement effectively grants each Member, regardless of its Percentage Interest, a veto right over any Major Decision. While this governance structure limits Briarwood's unilateral authority as Managing Member, it is standard in club-deal structures and reflects the principle that all equity participants in a joint venture should have meaningful control over the most consequential decisions affecting their investment.

B. Enumerated Major Decisions

We propose that the following actions be designated as Major Decisions requiring unanimous Member consent:

1. Sale or refinancing of the Property. Any disposition of the Property (whether by direct sale, entity-level transfer, or otherwise) or any refinancing, modification, extension, or replacement of the senior loan from Pinnacle Fidelity Bank, N.A. (Loan No. PFB-CRE-2023-05741).

2. Capital calls exceeding $500,000. The issuance of any capital call or series of capital calls resulting in aggregate additional capital contributions exceeding $500,000 in any rolling 12-month period.

3. Unbudgeted expenditures exceeding $250,000. The incurrence of any single expenditure or contractual commitment exceeding $250,000 that is not provided for in the approved annual budget.

4. Admission of new Members. The admission of any new Member to the JV Entity, whether through the issuance of new Membership Interests, the transfer of existing interests, or otherwise.

5. Voluntary bankruptcy filing. The filing of any voluntary petition for relief under the U.S. Bankruptcy Code or any analogous state insolvency law by the JV Entity or PropCo, or the consent to the filing of an involuntary petition against either entity.

6. Material loan document modifications. Any material modification, amendment, waiver, or consent under the senior loan documents (including the promissory note, mortgage, assignment of leases and rents, and related instruments), other than administrative or ministerial modifications.

7. Material leases. The execution, material modification, or termination of any lease (whether residential or retail) with annual base rent exceeding a specified threshold. We recommend setting this threshold at $100,000, which would capture the two ground-floor retail leases and any above-market residential leases, while leaving routine residential leasing within the Managing Member's authority.

8. Property Manager selection and replacement. The initial selection of, or any change to, the Property Manager, or any material modification to the property management agreement.

9. Litigation. The initiation, settlement, or compromise of any litigation, arbitration, or regulatory proceeding involving claims or potential exposure exceeding a specified threshold. We recommend a threshold of $150,000, to be determined in consultation with the co-investors.

C. Annual Budget Approval

The annual operating and capital budget for the Property will be prepared by Briarwood as Managing Member and submitted to the Members for approval no later than November 15 of each calendar year for the following fiscal year. Budget approval will require the affirmative vote of Members holding more than 50% of the aggregate Percentage Interests (a "Majority-in-Interest").

It is important to note the practical implications of this threshold for Briarwood. Because Briarwood holds exactly 50% of the Percentage Interests, it cannot approve the budget unilaterally — it must secure the concurrence of at least one co-investor. Conversely, neither Cedarpoint (30%) nor Halcyon Ridge (20%) can approve a budget without Briarwood's affirmative vote. This structure ensures that the budget reflects a consensus between Briarwood and at least one co-investor while preventing any single co-investor from unilaterally blocking a budget.

To address the risk of a budget impasse, we recommend including a "deemed approval" mechanism: if the Members fail to approve a budget by a specified date (e.g., December 31 of the preceding year), the prior year's approved budget shall become the default operating budget for the new fiscal year, with all line items adjusted upward by the lesser of (i) the annual percentage increase in the Consumer Price Index (CPI) for the New York-Newark-Jersey City metropolitan statistical area, or (ii) 3.0%. This escalation mechanism ensures continuity of operations and prevents a governance deadlock from disrupting property management.

D. Negotiation Recommendations on Governance

The unanimous consent requirement for Major Decisions is a standard feature of club-deal joint ventures and, while somewhat restrictive of Briarwood's operational flexibility, is appropriate given the nature of the co-investor relationship. Each Member is contributing meaningful equity to the venture, and the unanimous consent mechanism ensures that no Member's investment is subjected to material risk decisions without its affirmative approval.

That said, we recommend negotiating for clear delineation between Major Decisions (requiring unanimous consent) and the Managing Member's day-to-day operational authority. Specifically, the Operating Agreement should confirm that Briarwood has sole authority over:

(a) all day-to-day property operations, including routine maintenance, repairs, and tenant relations;

(b) all leasing decisions below the Major Decision threshold (i.e., residential leases and any commercial lease with annual rent below the specified threshold);

(d) routine administrative matters, including bank account management, vendor selection for budgeted items, and coordination with the lender on standard reporting obligations.

Capital Call Threshold. The $500,000 per 12-month period capital call threshold is relatively low for a $40 million asset. In practice, an unexpected capital need — such as a major building system failure, environmental remediation requirement, or accelerated lease-up expenditure — could easily approach or exceed this threshold. We anticipate that Whitfield Archer & Crane LLP may push to lower the threshold further, perhaps to $250,000 or $350,000. We recommend holding at $500,000 as the minimum threshold for a Major Decision capital call, noting that any capital call within the threshold still requires Managing Member authorization and must be for property-related purposes.

Emergency Expenditure Carve-Out. The $250,000 unbudgeted expenditure cap is restrictive and could hamper Briarwood's ability to respond promptly to emergencies. We recommend negotiating an express carve-out for emergency expenditures necessary to address life/safety issues, prevent imminent property damage, or comply with governmental orders, without regard to the $250,000 cap, provided that Briarwood delivers written notice to the co-investors within 48 hours of authorizing the expenditure. This carve-out is reasonable and protects all Members' interests by ensuring that the Property is properly maintained even in exigent circumstances.

VII. REMOVAL OF MANAGING MEMBER

The Operating Agreement will include provisions governing the removal of Briarwood as Managing Member. Given Briarwood's central role in the venture — as majority equity contributor, asset manager, and personal guarantor on the senior loan — the removal provisions must be carefully negotiated to protect Briarwood's position while providing appropriate accountability to the co-investors.

Standard for Removal. Briarwood may be removed as Managing Member only "for Cause." This is a protective standard that prevents the co-investors from removing Briarwood in the absence of a triggering event constituting Cause, even if they are dissatisfied with Briarwood's management or disagree with Briarwood's strategic decisions. Any disagreements short of Cause should be addressed through the governance mechanisms (Major Decisions, budget approval) rather than through removal.

Voting Threshold. Removal for Cause requires an affirmative vote of Members holding at least 66.67% of the non-Briarwood Percentage Interests. Because the non-Briarwood Members collectively hold 50% of the total Percentage Interests (Cedarpoint at 30% and Halcyon Ridge at 20%), and 66.67% of 50% is 33.33%, both Cedarpoint and Halcyon Ridge must vote in favor of removal for the threshold to be satisfied. In practical terms, this means that Briarwood cannot be removed unless both co-investors unanimously agree to removal — a single co-investor acting alone cannot effect removal, even for Cause.

Definition of "Cause." We propose that "Cause" be defined to include the following events:

(a) Fraud, embezzlement, or intentional misappropriation of JV funds or assets by Briarwood or any of its principals;

(b) Willful misconduct by Briarwood in the performance of its duties as Managing Member that results in material harm to the JV or the Property;

(c) Gross negligence by Briarwood in the performance of its Managing Member duties that results in material harm to the JV or the Property;

(d) A material breach by Briarwood of any provision of the Operating Agreement that remains uncured for a period of thirty (30) calendar days following delivery of written notice from the non-Briarwood Members specifying the nature of the breach in reasonable detail;

(e) The conviction of Briarwood, Elliot J. Briarwood, or any principal of Briarwood of a felony under federal or state law; and

(f) The voluntary or involuntary filing of a petition for relief under the U.S. Bankruptcy Code or any analogous state insolvency law by or against Briarwood Family Office LLC or Elliot J. Briarwood individually, unless an involuntary petition is dismissed within sixty (60) days of filing.

Recommendation. The "for Cause" removal standard, coupled with the requirement that both co-investors concur, is strongly protective of Briarwood's position as Managing Member. We anticipate that Whitfield Archer & Crane LLP will push for a broader definition of Cause — for example, by adding failure to meet specified performance benchmarks, persistent failure to deliver timely reporting, or loss of required licenses or permits. More aggressively, co-investors may seek a "without Cause" removal right, potentially with modified economics (e.g., permitting removal without Cause but with continued payment of Briarwood's promote or a buyout of Briarwood's interest at a formula price).

We strongly recommend resisting any "without Cause" removal mechanism. The for-Cause standard with a 30-day cure period is appropriate given the magnitude of Briarwood's responsibilities and, critically, the fact that Elliot J. Briarwood has personally guaranteed the senior loan. A without-Cause removal could leave Mr. Briarwood exposed as a guarantor on a loan for a venture in which he no longer has management authority — a profoundly inequitable outcome.

Interplay with Loan Guaranty. This leads to a critical structural point: the Operating Agreement should include a provision requiring that, in the event Briarwood is removed as Managing Member (whether for Cause or otherwise), the non-Briarwood Members and any successor Managing Member must, as a condition to the effectiveness of the removal, arrange for a replacement non-recourse carveout guaranty satisfactory to Pinnacle Fidelity Bank, N.A. in substitution for Mr. Briarwood's personal guaranty. Until such replacement guaranty is delivered and accepted by the lender, the removal of Briarwood should not become effective. This provision is essential to protect Mr. Briarwood from ongoing personal exposure on a loan over which he would no longer have management control or oversight.

VIII. TRANSFER RESTRICTIONS AND RIGHT OF FIRST OFFER

A. General Transfer Restriction

The Operating Agreement will include customary transfer restrictions prohibiting any Member from transferring, assigning, pledging, or otherwise disposing of all or any portion of its Membership Interest in the JV Entity except in compliance with the Right of First Offer procedure described below or in connection with a Permitted Transfer.

Permitted Transfers. The following categories of transfers will be exempted from the ROFO procedure:

(a) Transfers by any Member to an affiliate of such Member (i.e., an entity that directly or indirectly controls, is controlled by, or is under common control with, the transferring Member);

(b) Transfers by any Member to a family trust established for the benefit of the individual beneficial owners of such Member, or to immediate family members of such beneficial owners, for estate planning purposes; and

(c) Transfers required by operation of law, including transfers resulting from the death or incapacity of an individual beneficial owner of a Member.

In each case, the transferee must (i) assume all obligations of the transferring Member under the Operating Agreement, (ii) deliver an executed joinder agreement in form and substance reasonably acceptable to the other Members, and (iii) provide customary representations regarding its authority and capacity. The transferring Member shall remain jointly and severally liable with the transferee for all obligations arising prior to the effective date of the transfer.

B. Right of First Offer (ROFO)

If a Member desires to transfer its Membership Interest other than through a Permitted Transfer (such Member, the "Offering Member"), the following procedure will apply:

Step 1 — Offer Notice. The Offering Member must first deliver a written offer notice (the "ROFO Notice") to the other Members (collectively, the "Non-Transferring Members"), specifying (i) the number and percentage of Membership Interests proposed to be transferred, (ii) the proposed purchase price, (iii) the proposed payment terms and other material terms of the transfer, and (iv) the identity of any proposed third-party transferee, if known.

Step 2 — Election Period. The Non-Transferring Members shall have a period of thirty (30) calendar days following receipt of the ROFO Notice (the "ROFO Period") to elect, by written notice to the Offering Member, to purchase all (but not less than all) of the Membership Interests specified in the ROFO Notice on the same price and material terms set forth therein.

Step 3 — Pro Rata Allocation. If more than one Non-Transferring Member elects to purchase, the offered Membership Interests shall be allocated among the electing Members pro rata in proportion to their respective Percentage Interests (or as they may otherwise agree among themselves).

Step 4 — Third-Party Sale. If no Non-Transferring Member elects to purchase during the ROFO Period, the Offering Member shall be free to sell the offered Membership Interests to a third party at a price not less than 95% of the price stated in the ROFO Notice, on terms no more favorable to the purchaser than those stated in the ROFO Notice, provided that such sale is consummated within 180 calendar days following the expiration of the ROFO Period. If the sale is not consummated within such 180-day period, the Offering Member must repeat the ROFO procedure before any subsequent transfer.

Recommendation. The 30-day ROFO period is standard and provides Non-Transferring Members with adequate time to evaluate and respond to a potential transfer. We anticipate that co-investors may push for a right of first refusal ("ROFR") structure rather than a ROFO. Under a ROFR, the Offering Member would first negotiate and execute a definitive agreement with a third-party purchaser and then offer the Non-Transferring Members the right to purchase on the same terms. While a ROFR provides the Non-Transferring Members with the benefit of a market-tested price, it is significantly more burdensome for the Offering Member because the existence of the ROFR may deter potential third-party purchasers who are unwilling to invest the time and expense of negotiating a transaction that may ultimately be preempted.

We recommend maintaining the ROFO structure. A ROFO is more favorable to any potential transferor — including Briarwood — because it allows the Offering Member to set the price and terms without first having to identify and negotiate with a third party. The 95% floor on third-party sales provides adequate protection to the Non-Transferring Members by ensuring that the Offering Member does not use the ROFO process to establish a reference price and then sell at a deep discount to a favored third party.

IX. BUY-SELL (SHOTGUN) PROVISION

The Operating Agreement will include a buy-sell or "shotgun" mechanism that provides each Member with a market-tested exit path in the event of an irreconcilable disagreement among the Members regarding the future direction of the investment. The shotgun mechanism operates as follows:

Trigger Date. The buy-sell mechanism may not be invoked until after the third anniversary of the closing date (i.e., after approximately June 5, 2026, assuming a closing in early June 2023). This minimum holding period ensures that the Members commit to the investment for a reasonable initial term and do not use the shotgun mechanism to exit prematurely or opportunistically during the early stages of the venture's business plan.

Initiation. After the trigger date, any Member may initiate the buy-sell process by delivering a written buy-sell notice (the "Shotgun Notice") to all other Members. The Shotgun Notice must specify a single price for the entire Property (the "Shotgun Price"), which will serve as the basis for calculating the value of each Member's interest.

Election Period. The receiving Members shall have a period of sixty (60) calendar days following receipt of the Shotgun Notice (the "Response Period") to elect, by written notice to the initiating Member, one of the following:

(a) Election to Sell. The receiving Member(s) may elect to sell their respective Membership Interests to the initiating Member at a price derived from the Shotgun Price, calculated on a pro rata basis to reflect each selling Member's Percentage Interest (i.e., the selling Member receives its pro rata share of the implied equity value, calculated as the Shotgun Price less outstanding debt and transaction costs); or

(b) Election to Buy. The receiving Member(s) may elect to purchase the initiating Member's Membership Interest at the same pro rata price derived from the Shotgun Price.

Conflicting Elections. If there are two non-initiating Members (as in this JV) and they make different elections — one electing to sell and the other electing to buy — the Member(s) electing to buy shall have priority. If neither non-initiating Member elects to buy within the Response Period, the initiating Member shall have the right to purchase all other Members' interests at the Shotgun Price.

Mechanics. The closing of the buy-sell transaction shall occur within sixty (60) days following the expiration of the Response Period. The purchasing Member(s) must have the financial capacity to close and must arrange any necessary financing on their own behalf.

Analysis. The shotgun mechanism is a well-established feature of joint venture agreements and provides an effective exit valve in the event of deadlock. However, it inherently favors the better-capitalized party, as the ability to set a price and to respond to a buy-sell notice depends on the financial resources available to the Member. In this venture, Briarwood is the largest and most well-capitalized Member, which means that the shotgun mechanism is structurally advantageous to Briarwood. Briarwood can initiate the process with confidence that it has the resources to close on a purchase of the co-investors' interests if they elect to sell, and Briarwood can respond to any co-investor-initiated shotgun with the financial capacity to either buy or be bought out on favorable terms.

Recommendation. We anticipate that co-investors may seek protective modifications to the shotgun mechanism, including:

(i) A "Texas Shootout" variant, in which all Members submit sealed bids and the highest bidder has the right to purchase the other Members' interests — this approach reduces the informational advantage of the initiating party but introduces complexity and potential gamesmanship;

(ii) A cooling-off period (e.g., 30 days of mandatory mediation or good-faith negotiation) before the shotgun can be invoked, to encourage resolution short of the buy-sell mechanism;

(iii) A requirement that the Shotgun Price be supported by a third-party appraisal, rather than being set unilaterally by the initiating Member.

We recommend maintaining the simple shotgun structure with the 60-day response period as proposed. The simplicity of the mechanism is a virtue — it provides certainty and minimizes the transaction costs associated with the exit process. The 60-day Response Period provides adequate time for receiving Members to arrange financing and make an informed decision. Should co-investors press aggressively for a Texas Shootout or appraisal requirement, we can discuss the relative merits with Briarwood at that time, but our initial position should be to preserve the traditional shotgun structure.

X. CAPITAL CALLS AND DILUTION

A. Capital Call Procedure

The Operating Agreement will include provisions authorizing the Managing Member (Briarwood) to issue capital calls to the Members to fund property-related needs, including operating shortfalls, capital improvements, loan paydowns or defeasance costs, emergency repairs, and other purposes approved under the Operating Agreement or by the Members in accordance with the governance provisions.

Capital calls will be subject to the following limitations and procedures:

• Capital calls resulting in aggregate additional capital contributions exceeding $500,000 in any rolling 12-month period constitute a Major Decision and require unanimous consent of all Members (see Section VI.B.2).

• Capital calls within the $500,000 annual threshold require only Managing Member authorization, without the need for Member consent. This authority enables Briarwood to respond promptly to routine capital needs without the delay of a full Member approval process.

• Each Member is obligated to fund its pro rata share of any capital call in proportion to its Percentage Interest.

• Members must fund their respective capital call amounts within fifteen (15) business days of receipt of the capital call notice from the Managing Member. The capital call notice shall specify the aggregate amount of the call, each Member's pro rata share, the purpose of the call, and the date by which funding is required.

B. Dilution for Non-Contributing Members

If any Member (a "Non-Contributing Member") fails to fund its pro rata share of a duly authorized capital call within the required 15-business-day period, the Operating Agreement will provide for the following consequences:

Funding by Contributing Members. The Members who have timely funded their capital call amounts (the "Contributing Members") shall have the right, but not the obligation, to fund the Non-Contributing Member's shortfall. If more than one Contributing Member elects to fund the shortfall, the shortfall shall be allocated among the electing Contributing Members pro rata to their respective Percentage Interests (or as they may otherwise agree).

Punitive Dilution. The Non-Contributing Member will be diluted on a 1.5x punitive basis. This means that the Contributing Members who fund the Non-Contributing Member's shortfall will receive credit in their capital accounts for 1.5 times the amount they contribute on behalf of the Non-Contributing Member. The Percentage Interests of all Members will then be recalculated based on the Members' adjusted deemed total capital contributions (i.e., actual capital contributions plus any punitive credits).

Illustrative Example. Assume that a $500,000 capital call is issued, with the following pro rata allocations: Briarwood $250,000 (50%), Cedarpoint $150,000 (30%), Halcyon Ridge $100,000 (20%). If Halcyon Ridge fails to fund its $100,000 share and Briarwood elects to fund the shortfall, Briarwood would receive capital account credit of $150,000 ($100,000 × 1.5). The Percentage Interests would then be recalculated based on adjusted capital contributions:

Note: This example is illustrative and assumes Briarwood funds the entire shortfall. Actual calculations would follow the precise methodology specified in the Operating Agreement.

The 1.5x punitive dilution serves as both a deterrent against capital call defaults and a compensatory mechanism for the Contributing Members who bear the additional risk and financial burden of funding another Member's obligation.

Recommendation. The 1.5x punitive dilution multiple is standard in institutional joint ventures and has been upheld as commercially reasonable in various contexts. We anticipate that co-investors may push for a lower multiple (e.g., 1.25x) or propose an alternative remedy structure — specifically, a "loan alternative" in which the shortfall amount is treated as a loan from the Contributing Members to the Non-Contributing Member at a penalty interest rate (e.g., 15% per annum or prime plus 5%), with the loan repayable from subsequent distributions, rather than resulting in immediate and permanent dilution of the Non-Contributing Member's interest.

We recommend maintaining the 1.5x dilution structure as the primary remedy for capital call defaults. The dilution approach is simpler, self-executing, and provides stronger incentive for timely funding than a loan alternative. However, as a reasonable concession to the co-investors, we are prepared to offer a 10-business-day cure period before the dilution takes effect. Under this approach, if a Member fails to fund within the initial 15-business-day period, the Non-Contributing Member would receive a written default notice and an additional 10 business days to cure the default before the Contributing Members may exercise their right to fund the shortfall and trigger the punitive dilution. This additional cure period provides a safety net against inadvertent defaults (e.g., wire transfer delays or administrative errors) while preserving the integrity of the dilution mechanism.

XI. REPORTING OBLIGATIONS

A. Financial Reporting

Transparency and timely reporting are essential to maintaining trust and confidence among the Members of a club-deal joint venture. The Operating Agreement will require the following reporting deliverables:

Monthly Reporting. Property-level operating reports shall be delivered to all Members within twenty (20) calendar days following the end of each calendar month. These monthly reports will be prepared by Summit Property Group LLC in its capacity as Property Manager and will be reviewed and approved by Briarwood as Managing Member before distribution. The monthly reports shall include, at a minimum: (i) a summary of gross revenue, operating expenses, and net operating income for the month; (ii) a comparison of actual results to the approved annual budget; (iii) an occupancy report, including a summary of new leases, renewals, and move-outs; (iv) an accounts receivable aging report; and (v) a summary of any material capital expenditures or extraordinary items.

Quarterly Reporting. Unaudited financial statements of the JV Entity shall be delivered to all Members within forty-five (45) calendar days following the end of each fiscal quarter. The quarterly financial statements shall include: (i) a balance sheet of the JV Entity and PropCo as of the end of the quarter; (ii) an income statement for the quarter and year-to-date; (iii) a statement of cash flows for the quarter and year-to-date; (iv) a variance analysis comparing actual results to the approved annual budget, with narrative explanations for any material variances (defined as deviations of 5% or more from any major budget line item); and (v) a summary of capital account balances and unreturned capi

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION
MEMORANDUM
FROM: Angela Fontaine, Partner, and Grace Nakamura, Associate Calderwood & Harkness LLP 280 Park Avenue New York, NY 10017
TO: Elliot J. Briarwood, Founder & Managing Principal Briarwood Family Office LLC 450 Park Avenue, 31st Floor New York, NY 10022
DATE: February 22, 2023
RE: Proposed Economic and Governance Terms — Gramercy Linden JV LLC (Club-Deal Joint Venture for Acquisition of The Linden at Gramercy Park)
MATTER NO.: 1026-00004
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP has been engaged, pursuant to the retainer agreement executed on February 8, 2023, to represent Briarwood Family Office LLC ("Briarwood" or the "Client") in connection with the formation and negotiation of a club-deal joint venture to acquire The Linden at Gramercy Park (the "Property"), a 212-unit Class A multifamily residential property located at 245 East 21st Street, New York, NY 10010 (Block 899, Lot 42, Borough of Manhattan). The transaction presents a compelling opportunity for Briarwood to serve as the Managing Member of a well-capitalized joint venture acquiring a premium, gut-renovated multifamily asset in one of Manhattan's most desirable residential submarkets.
The joint venture entity will be Gramercy Linden JV LLC ("GLJV" or the "JV Entity"), organized as a Delaware limited liability company. GLJV will hold the Property through a wholly owned subsidiary, Gramercy Linden PropCo LLC ("PropCo"), a New York limited liability company. PropCo will serve as the direct title holder to the Property and will be the borrower under the senior acquisition financing to be provided by Pinnacle Fidelity Bank, N.A. This two-tier structure is standard for real estate joint ventures and provides both liability insulation at the JV level and compliance with lender requirements for a single-asset, special-purpose borrower at the PropCo level.
The proposed co-investors in the joint venture are:
(a) Cedarpoint Capital Partners LLC ("Cedarpoint"), a Delaware limited liability company headquartered at 200 Ashbury Asset Advisors, Suite 1400, Boston, MA 02109. Cedarpoint is co-managed by Jonathan Hu and Priya Raghavan and manages approximately $1.1 billion in assets under management, focused primarily on value-add multifamily and industrial real estate. Cedarpoint has completed 38 prior multifamily transactions totaling approximately $3.4 billion in aggregate transaction value across major U.S. markets.
(b) Halcyon Ridge Investments LP ("Halcyon Ridge"), a Delaware limited partnership with its general partner being Halcyon Ridge GP LLC. Halcyon Ridge is headquartered at 1700 Market Street, Suite 2200, Philadelphia, PA 19103, and is led by managing partner Garrett Ellison. The firm manages approximately $680 million in assets under management, with a particular focus on urban multifamily and mixed-use properties in the Northeast and Mid-Atlantic corridors.
Cedarpoint and Halcyon Ridge are jointly represented in this transaction by Whitfield Archer & Crane LLP, located at One Federal Street, Suite 3600, Boston, MA 02110, with lead partner Nadia Kowalski and associate Thomas Greenbaum serving as their primary counsel.
The purpose of this memorandum is threefold: (1) to summarize the proposed economic and governance terms of the joint venture as reflected in the preliminary term sheet discussions to date; (2) to analyze the key provisions and identify potential areas of negotiation; and (3) to recommend specific negotiation positions for Briarwood in its capacity as the Managing Member and the largest single equity contributor to the venture.
The total capitalization for the acquisition is $40,000,000, consisting of a senior loan of $26,000,000 from Pinnacle Fidelity Bank, N.A. (representing a 65% loan-to-value ratio) and total equity contributions of $14,000,000 from the three Members. Briarwood will contribute $7,000,000, representing a 50% equity interest and making it the single largest equity contributor. In addition to its role as Managing Member and asset manager, Briarwood — and specifically Elliot J. Briarwood individually — will serve as the guarantor on the non-recourse carveout guaranty required by the senior lender, a responsibility that creates meaningful personal exposure and that, as we discuss further below, must be carefully addressed in the joint venture documentation.
This memorandum addresses each of the material economic and governance terms in detail and concludes with a summary of our recommended negotiation positions and proposed next steps for advancing the transaction.
II. TRANSACTION OVERVIEW
A. The Property
The Linden at Gramercy Park is a 212-unit Class A multifamily residential building with two ground-floor retail units comprising approximately 4,800 square feet of combined retail space. The Property is located at 245 East 21st Street, New York, NY 10010, situated in one of Manhattan's most sought-after residential neighborhoods, directly adjacent to the private Gramercy Park. The Property is identified on the City's tax maps as Block 899, Lot 42, Borough of Manhattan.
The building was originally constructed in 1928 and underwent a comprehensive gut renovation between 2017 and 2018, at an estimated renovation cost of approximately $8.2 million funded by the current Seller. The renovation program included full modernization of building systems (HVAC, plumbing, electrical), replacement of all unit finishes and fixtures, installation of a new elevator cab and modernized elevator controls, new common area finishes including a renovated lobby and fitness center, and remediation of any outstanding code violations. As a result, the Property presents as a substantially "like-new" Class A product despite its pre-war structural characteristics, which themselves command a premium in the Gramercy submarket.
The Property has a gross building area of approximately 187,400 square feet. The residential unit mix comprises studios, one-bedroom, two-bedroom, and three-bedroom apartments, providing diversity in the tenant base and exposure to multiple rent tiers within the neighborhood. Current occupancy, as reported in the January 2023 rent roll provided by the Seller, stands at 96.2%, reflecting strong market demand and the Property's competitive positioning within the Gramercy Park submarket.
The Seller is Linden Gramercy Holdings LLC, a New York limited liability company with Marcus Steinfeld serving as managing member. Linden Gramercy Holdings LLC is a single-asset holding entity that acquired the Property in 2005 for approximately $18.5 million. The Seller is represented by Reedmore & Pratt LLP, with David Ochoa, Partner, serving as lead counsel, located at 575 Madison Avenue, 20th Floor, New York, NY 10022.
B. Capitalization Summary
The capitalization for the acquisition is structured as follows:
Purchase Price. The negotiated purchase price for the Property is $40,000,000, which is a fixed amount and is not subject to adjustment. This price represents a going-in capitalization rate of 5.60% based on trailing twelve-month net operating income, and a pro forma capitalization rate of 6.30% based on the Year 1 stabilized pro forma underwriting prepared by Briarwood's internal team.
Senior Loan. The acquisition will be financed with a senior mortgage loan of $26,000,000 from Pinnacle Fidelity Bank, N.A. (383 Madison Avenue, New York, NY 10179), with Sandra Kim, Vice President, CRE Lending, serving as the designated loan officer. The key terms of the senior loan are as follows:
• Loan amount: $26,000,000
• Loan-to-value ratio: 65.0%
• Interest rate: SOFR + 215 basis points, with a 3.00% SOFR floor
• Loan term: 5 years (maturing approximately June 2028, assuming a June 2023 closing)
• Amortization: 24-month interest-only period, followed by a 30-year amortization schedule
• Extension options: 2 × 1-year extension options (subject to satisfaction of conditions to be negotiated)
• Guaranty: Non-recourse carveout guaranty required from Elliot J. Briarwood individually
Total Equity. The total equity required to close the acquisition is $14,000,000, calculated as the difference between the $40,000,000 purchase price and the $26,000,000 senior loan. As set forth in greater detail in Section III below, the equity will be contributed by the three Members in proportion to their agreed Percentage Interests: Briarwood at 50%, Cedarpoint at 30%, and Halcyon Ridge at 20%.
Appraised Value. The Property was appraised at $41,200,000 by Greystone Appraisal Associates LLC, in an appraisal dated February 15, 2023 (file number GAA-2023-NY-1148), prepared by lead appraiser Helen Vasquez, MAI. The appraised value exceeds the purchase price by $1,200,000, or approximately 3.0%, which provides a modest built-in equity cushion at acquisition.
Earnest Money Deposit. An earnest money deposit of $2,000,000 (representing 5% of the purchase price) will be delivered in connection with the execution of the purchase and sale agreement. The deposit will be held in escrow by Archer & Towne Title Company, with Philip Moreno serving as the designated title officer. As discussed further in Section III, we recommend that this deposit be funded initially by Briarwood and credited against Briarwood's capital contribution at closing.
Estimated Closing Costs. We estimate total closing costs of approximately $1,850,000, inclusive of the following:
These closing costs will be funded by the Members pro rata to their Percentage Interests as additional capital contributions, as described in Section III below.
C. Property Financial Highlights
Based on our review of the Seller's trailing twelve-month operating statements and the preliminary underwriting prepared by Briarwood's internal team, the Property's financial profile is summarized as follows:
In-Place Net Operating Income (T-12, Calendar Year 2022): $2,240,000
Going-In Capitalization Rate (In-Place): 5.60% ($2,240,000 ÷ $40,000,000). This going-in cap rate is consistent with recent transactions for comparable Class A multifamily properties in Manhattan's core neighborhoods, where cap rates have generally ranged between 5.25% and 6.00% over the past twelve months.
Stabilized Pro Forma NOI (Year 1): $2,520,000. The pro forma underwriting assumes moderate rent increases on lease renewals, a reduction in vacancy to approximately 3.0%, and stabilized operating expenses reflecting full management under Summit Property Group LLC.
Pro Forma Capitalization Rate: 6.30% ($2,520,000 ÷ $40,000,000). The upside from in-place NOI to stabilized NOI is approximately $280,000, driven primarily by the anticipated rent growth and modest vacancy reduction, and represents a reasonable and achievable business plan.
D. JV Structure
The joint venture will be organized in a two-tier structure that is standard for leveraged real estate acquisitions of this nature. The structure is as follows:
Top Tier — Gramercy Linden JV LLC (Delaware LLC). The JV Entity will be organized as a Delaware limited liability company with three Members: Briarwood Family Office LLC (Managing Member, 50%), Cedarpoint Capital Partners LLC (Member, 30%), and Halcyon Ridge Investments LP (Member, 20%). The JV Entity will serve as the investment vehicle through which all economic interests are held and all governance decisions are made.
Bottom Tier — Gramercy Linden PropCo LLC (New York LLC). PropCo will be organized as a New York limited liability company and will be wholly owned by the JV Entity. PropCo will serve as the direct title holder to the Property and as the borrower under the senior acquisition loan from Pinnacle Fidelity Bank, N.A. PropCo will be structured as a single-purpose, bankruptcy-remote entity as required by the senior lender, with customary SPE covenants in its operating agreement and organizational documents.
This two-tier structure provides several benefits: (i) it isolates the Property and the senior loan at the PropCo level, limiting the recourse of the lender and third parties to the assets of PropCo; (ii) it satisfies the lender's requirement for a single-purpose borrower; (iii) it facilitates potential future restructuring, refinancing, or disposition at either the entity level (through a transfer of PropCo interests) or the asset level (through a direct property sale); and (iv) it provides flexibility for tax planning purposes.
III. EQUITY STRUCTURE
A. Member Contributions and Percentage Interests
The equity contributions and corresponding Percentage Interests of each Member are as follows:
All capital contributions are to be funded at closing. The funding of each Member's full capital contribution will be a condition precedent to closing under the JV Operating Agreement, meaning that no Member may close unless all Members have simultaneously funded their respective contributions. This closing condition is standard and ensures that no Member bears a disproportionate funding risk at the time of acquisition.
In addition to the equity contributions set forth above, closing costs estimated at $1,850,000 will be funded by the Members pro rata to their Percentage Interests as additional capital contributions. The closing cost allocations are as follows:
• Briarwood Family Office LLC (50%): $925,000
• Cedarpoint Capital Partners LLC (30%): $555,000
• Halcyon Ridge Investments LP (20%): $370,000
Accordingly, Briarwood's total funding obligation at closing will be $7,925,000 ($7,000,000 equity contribution plus $925,000 pro rata share of closing costs), subject to credit for the $2,000,000 earnest money deposit previously funded.
With respect to the earnest money deposit, we note that the $2,000,000 deposit will be funded initially and solely by Briarwood in connection with the execution of the purchase and sale agreement. At closing, this deposit will be credited against Briarwood's capital contribution, reducing Briarwood's net funding at closing to $5,925,000. We recommend that the Operating Agreement expressly confirm this credit and characterize the earnest money deposit as a capital contribution by Briarwood from and after the date it is funded, such that Briarwood begins accruing preferred return on the deposit amount from the date of its funding rather than from the closing date.
B. Recommendation on Equity Structure
Briarwood's 50% equity interest appropriately reflects its multifaceted role in the venture. As the largest single equity contributor, the Managing Member, the day-to-day asset manager, and the personal guarantor on the senior loan, Briarwood's position at 50% is proportionate to the scope of its responsibilities and the magnitude of its risk exposure. The equity allocation also ensures that Briarwood holds a meaningful governance position — while not sufficient to unilaterally approve the annual budget (which requires a Majority-in-Interest, as discussed in Section VI below), the 50% interest ensures that no Major Decision or budget can be approved without Briarwood's concurrence.
We recommend confirming in the Operating Agreement that the earnest money deposit is expressly treated as a capital contribution by Briarwood, with full credit against Briarwood's closing capital contribution and preferred return accrual from the date the deposit is funded. This is a straightforward provision that should not engender significant opposition from the co-investors.
Based on our discussions with Briarwood's team and our preliminary communications with Whitfield Archer & Crane LLP, we do not anticipate significant pushback from the co-investors on the percentage allocation. These splits were agreed in principle at the letter of intent stage, and both Cedarpoint and Halcyon Ridge have confirmed their commitment to the agreed allocations.
IV. DISTRIBUTION WATERFALL
A. Proposed Five-Tier Waterfall
The distribution waterfall governs the allocation of distributable cash flow from operations and capital event proceeds (i.e., proceeds from a sale, refinancing, or other capital event) among the Members. The proposed waterfall comprises five tiers, structured to prioritize the return of contributed capital and a preferred return to all Members before allocating promote distributions to Briarwood as Managing Member. The tiers are as follows:
Tier 1 — Return of Capital. All distributable cash flow and capital event proceeds shall first be distributed to the Members pro rata in proportion to their respective Percentage Interests until each Member has received cumulative distributions equal to the full amount of its unreturned capital contributions (including both the initial equity contribution and any additional capital contributions for closing costs or subsequent capital calls). This tier ensures that no Member receives promote or incentive distributions until all Members have been made whole on their invested capital.
Tier 2 — Preferred Return. After satisfaction of Tier 1, all distributable cash flow and capital event proceeds shall be distributed to the Members pro rata in proportion to their respective Percentage Interests until each Member has received cumulative distributions (in excess of its capital return under Tier 1) equal to an 8.0% per annum cumulative, non-compounding preferred return on its unreturned capital contributions. The preferred return accrues from the date each capital contribution is funded and continues to accrue on any unreturned capital balance.
It is important to note the distinction between "cumulative" and "non-compounding" in this context. The preferred return is "cumulative," meaning that if distributable cash flow in any given period is insufficient to pay the full preferred return, the unpaid amount accrues and must be satisfied in full before any distributions are made under Tiers 3, 4, or 5. The preferred return is "non-compounding," meaning that the 8.0% per annum rate is calculated solely on the original unreturned capital contributions — accrued but unpaid preferred return does not itself earn additional preferred return. This is a standard formulation in institutional real estate joint ventures.
Tier 3 — Catch-Up. After satisfaction of Tiers 1 and 2, distributable cash flow and capital event proceeds shall be distributed 60% to Briarwood (in its capacity as Managing Member, as a promote distribution) and 40% to all Members pro rata in proportion to their Percentage Interests, until Briarwood has received cumulative promote distributions equal to 20% of all cumulative profits distributed above the preferred return (i.e., distributions in excess of those allocated under Tiers 1 and 2). This catch-up tier is designed to accelerate Briarwood's receipt of its promote share, bringing Briarwood's aggregate promote to a 20% participation in profits above the preferred return hurdle before transitioning to the next tier.
Tier 4 — Above 12% IRR Hurdle. After all Members have achieved a 12% internal rate of return ("IRR") on their aggregate equity contributions (measured on the basis of actual dates of capital contributions and distributions using XIRR methodology), all subsequent distributable cash flow and capital event proceeds shall be distributed 80% to all Members pro rata in proportion to their Percentage Interests and 20% to Briarwood as a Managing Member promote distribution. The 12% IRR is calculated on the aggregate equity contributions and distributions to all Members collectively, not on a member-by-member basis. This aggregate approach simplifies the calculation and avoids disparities that could arise from differing funding dates or interim distributions.
Tier 5 — Above 18% IRR Hurdle. After all Members have achieved an 18% IRR on their aggregate equity contributions (calculated using the same XIRR methodology), all subsequent distributable cash flow and capital event proceeds shall be distributed 70% to all Members pro rata in proportion to their Percentage Interests and 30% to Briarwood as a Managing Member promote distribution. This top-tier promote reflects the enhanced incentive for Briarwood in scenarios where the venture significantly outperforms underwriting.
B. Analysis and Negotiation Recommendations on Waterfall
The proposed waterfall structure is well within market parameters for Class A multifamily joint ventures in gateway markets. Based on our review of comparable club-deal joint venture terms from recent Calderwood & Harkness transactions (see Appendix D for anonymized benchmarking data), we offer the following analysis and recommendations:
Preferred Return (8.0%). The 8.0% cumulative, non-compounding preferred return is consistent with the prevailing market range of 7.0% to 9.0% for Class A multifamily acquisitions in major metropolitan markets. Given the quality of the Property (a gut-renovated, 96.2% occupied building in Gramercy Park), the 24-month interest-only period on the senior loan (which enhances initial cash-on-cash returns and provides a cushion for preferred return coverage), and the general stability of the Gramercy submarket, we believe 8.0% is appropriate. We anticipate that co-investors — particularly Cedarpoint, which has historically operated in value-add strategies with somewhat higher return expectations — may push for a 9.0% preferred return. We recommend holding firm at 8.0% and, if necessary, pointing to the interest-only period and the strong in-place occupancy as mitigating factors that reduce the risk of a preferred return shortfall.
Catch-Up Mechanism (Tier 3). The 60/40 catch-up split is favorable to Briarwood and somewhat aggressive relative to the 50/50 catch-up that is more commonly seen in institutional joint ventures where the managing member's promote is in the 20% range. We anticipate that Whitfield Archer & Crane LLP, on behalf of Cedarpoint and Halcyon Ridge, will push to narrow the catch-up to a 50/50 split. We recommend defending the 60/40 structure in initial negotiations but are prepared to accept 55/45 as a fallback if necessary to reach agreement on the overall package. The difference between 60/40 and 55/45 is modest in absolute dollar terms but signals Briarwood's priority in the economics of the deal.
IRR Hurdles (12% and 18%). The 12% and 18% IRR hurdles are standard for multifamily joint ventures in this size range. The corresponding 80/20 and 70/30 splits at Tiers 4 and 5 are in line with market for a managing member/operator promote structure and are unlikely to face significant resistance.
Promote Clawback. We expect the co-investors to request the inclusion of a clawback mechanism applicable to promote distributions at capital events. The purpose of a clawback is to ensure that cumulative distributions over the life of the investment are consistent with the waterfall when calculated on a look-back basis — that is, if interim distributions resulted in Briarwood receiving promote amounts that, when recalculated at the time of a capital event, exceed what Briarwood would have been entitled to receive, Briarwood would be obligated to return the excess. We recommend accepting a clawback provision, subject to two important limitations: (i) the clawback should be subject to a reasonable lookback period of no more than 12 months (i.e., the clawback applies only to promote distributions received within the 12 months preceding the capital event), and (ii) the maximum clawback amount should be capped at the aggregate promote distributions actually received by Briarwood, net of taxes paid on such distributions.
IRR Calculation Methodology. All IRR calculations should be specified in the Operating Agreement to use actual dates of capital contributions and distributions, consistent with the XIRR methodology. The definition of "IRR" and the computational mechanics (including the treatment of reserves, working capital, and tax distributions) should be carefully defined in the Operating Agreement to avoid ambiguity and potential disputes.
Preferred Return Accrual Date. We recommend including a clear provision that the preferred return begins accruing on the date each capital contribution is funded. For initial contributions made at closing (anticipated to be in June 2023), the accrual commencement date will be the closing date. For the earnest money deposit funded by Briarwood prior to closing, preferred return should accrue from the date the deposit is funded.
V. MANAGEMENT AND FEES
A. Managing Member Role and Duties
Briarwood will be designated as the Managing Member of Gramercy Linden JV LLC. In this capacity, Briarwood will have primary responsibility for the oversight and management of the Property and the operations of the JV, subject to the governance limitations established in the Operating Agreement (including the Major Decision consent requirements discussed in Section VI below).
Briarwood's duties as Managing Member will include, without limitation:
(a) overseeing all aspects of property operations, including leasing, tenant relations, and building maintenance;
(b) managing the relationship with the Property Manager (Summit Property Group LLC), including monitoring performance, reviewing monthly operating reports, and ensuring compliance with the property management agreement;
(c) preparing and submitting annual operating and capital budgets to the Members for approval in accordance with the budget approval process described in Section VI.C;
(d) coordinating with the senior lender, Pinnacle Fidelity Bank, N.A., on all matters related to the senior loan, including compliance with financial covenants (DSCR minimum of 1.25x, LTV maximum of 70%), timely delivery of required reporting packages, and management of any lender consent requirements;
(e) overseeing capital improvement programs and directing the implementation of approved capital expenditures within the scope of the approved budget;
(f) managing and directing the eventual disposition or refinancing of the Property, subject to the Major Decision approval requirements; and
(g) such other duties as are customarily performed by a managing member of a real estate joint venture of this nature.
B. Asset Management Fee
In consideration of its services as Managing Member and asset manager, Briarwood will receive an asset management fee equal to 1.0% of Effective Gross Revenue ("EGR") per annum. The fee will be payable monthly in arrears and will be treated as an operating expense of the JV Entity — that is, it will be deducted from gross revenue before the determination of distributable cash flow. This characterization ensures that the asset management fee is senior to all distributions to Members, including distributions under the preferred return tier of the waterfall.
Based on the Property's calendar year 2022 Effective Gross Revenue of approximately $5,975,568 (see Section II.C), the estimated Year 1 asset management fee would be approximately $59,756. As EGR grows through rent increases and occupancy optimization, the fee will correspondingly increase, providing Briarwood with an incentive that is aligned with the revenue performance of the Property.
Recommendation. We anticipate that co-investors may resist the 1.0% EGR fee and propose a reduced rate of 0.75%, or alternatively may seek to subordinate the fee to the preferred return in the distribution waterfall — meaning the fee would be payable only to the extent there is positive cash flow after debt service and preferred return distributions. We recommend holding at the 1.0% rate, which is consistent with market norms for managing member asset management fees in Class A multifamily joint ventures. If necessary to secure the 1.0% rate, we are prepared to offer subordination of the asset management fee to the preferred return as a concession. In practical terms, given the Property's strong cash flow profile and the 24-month interest-only period, we do not anticipate that subordination would result in any actual deferral of the fee during the projected hold period, making it a low-cost concession that may satisfy the co-investors' concern without materially affecting Briarwood's economics.
C. Property Management
Day-to-day property management of the Property will be performed by Summit Property Group LLC ("Summit"), located at 315 West 36th Street, 4th Floor, New York, NY 10018. The primary contact at Summit is Diana Castillo, Senior Vice President. Summit is an experienced third-party property management firm with a significant portfolio of Class A multifamily properties in the New York metropolitan area.
The property management fee will be 3.5% of Effective Gross Revenue, which is within the standard range for third-party management of a multifamily property of this size and quality in New York City. The property management agreement will be between PropCo and Summit, and will be subject to the terms and conditions negotiated by Briarwood in consultation with the co-investors.
We anticipate that co-investors will request that the selection and replacement of the Property Manager be designated as a Major Decision requiring unanimous consent of all Members. This request is reasonable and consistent with customary practice in club-deal joint ventures, and we recommend accepting it as a governance concession. As noted in Section XVI below, we have included the addition of property manager selection and replacement to the Major Decisions list as a concession we are prepared to offer.
D. Accounting and Tax
Tax structuring, compliance, and K-1 preparation for the JV Entity and PropCo will be handled by Kessler Whitmore & Co. LLP, a nationally recognized accounting and tax advisory firm. The primary contact is Robert Nwosu, CPA, Partner, Real Estate Tax Group, located at 1185 Avenue of the Americas, 22nd Floor, New York, NY 10036. Mr. Nwosu has extensive experience advising real estate joint ventures on partnership tax matters and has previously worked with Briarwood on other investments.
Briarwood will serve as the Tax Matters Partner of the JV Entity. Under the Bipartisan Budget Act of 2015 ("BBA") centralized partnership audit regime (applicable to partnership tax years beginning after December 31, 2017), this role is more accurately described as the "Partnership Representative." As Partnership Representative, Briarwood will have the authority to act on behalf of the partnership in any IRS audit proceedings, and all members will be bound by actions taken by the Partnership Representative. We recommend that the Operating Agreement include customary provisions governing the Partnership Representative's authority, including a requirement to notify all Members of any audit proceedings, an obligation to consult with Members before agreeing to any material tax adjustments, and a right for Members to elect into the "push-out" election under Section 6226 of the Internal Revenue Code in lieu of paying any imputed underpayment at the partnership level.
The fiscal year of the JV Entity will be the calendar year, consistent with the tax years of the individual Members and their beneficial owners.
We further recommend including tax distribution provisions in the Operating Agreement requiring the JV Entity to make minimum quarterly distributions to the Members in amounts sufficient to cover each Member's estimated federal, state, and local income tax liabilities arising from the Member's allocable share of the JV Entity's taxable income. These tax distributions are particularly important during the 24-month interest-only period, when cash-on-cash returns may be sufficient to cover the preferred return but distributable cash flow after reserves may be limited, potentially resulting in phantom income to the Members (i.e., taxable income allocated to a Member in excess of cash distributions received).
VI. GOVERNANCE AND MAJOR DECISIONS
A. Major Decision Consent Threshold
As is customary in club-deal joint ventures, certain significant actions and decisions will be designated as "Major Decisions" and will require the unanimous consent of all Members — Briarwood, Cedarpoint, and Halcyon Ridge. The unanimous consent requirement effectively grants each Member, regardless of its Percentage Interest, a veto right over any Major Decision. While this governance structure limits Briarwood's unilateral authority as Managing Member, it is standard in club-deal structures and reflects the principle that all equity participants in a joint venture should have meaningful control over the most consequential decisions affecting their investment.
B. Enumerated Major Decisions
We propose that the following actions be designated as Major Decisions requiring unanimous Member consent:
1. Sale or refinancing of the Property. Any disposition of the Property (whether by direct sale, entity-level transfer, or otherwise) or any refinancing, modification, extension, or replacement of the senior loan from Pinnacle Fidelity Bank, N.A. (Loan No. PFB-CRE-2023-05741).
2. Capital calls exceeding $500,000. The issuance of any capital call or series of capital calls resulting in aggregate additional capital contributions exceeding $500,000 in any rolling 12-month period.
3. Unbudgeted expenditures exceeding $250,000. The incurrence of any single expenditure or contractual commitment exceeding $250,000 that is not provided for in the approved annual budget.
4. Admission of new Members. The admission of any new Member to the JV Entity, whether through the issuance of new Membership Interests, the transfer of existing interests, or otherwise.
5. Voluntary bankruptcy filing. The filing of any voluntary petition for relief under the U.S. Bankruptcy Code or any analogous state insolvency law by the JV Entity or PropCo, or the consent to the filing of an involuntary petition against either entity.
6. Material loan document modifications. Any material modification, amendment, waiver, or consent under the senior loan documents (including the promissory note, mortgage, assignment of leases and rents, and related instruments), other than administrative or ministerial modifications.
7. Material leases. The execution, material modification, or termination of any lease (whether residential or retail) with annual base rent exceeding a specified threshold. We recommend setting this threshold at $100,000, which would capture the two ground-floor retail leases and any above-market residential leases, while leaving routine residential leasing within the Managing Member's authority.
8. Property Manager selection and replacement. The initial selection of, or any change to, the Property Manager, or any material modification to the property management agreement.
9. Litigation. The initiation, settlement, or compromise of any litigation, arbitration, or regulatory proceeding involving claims or potential exposure exceeding a specified threshold. We recommend a threshold of $150,000, to be determined in consultation with the co-investors.
C. Annual Budget Approval
The annual operating and capital budget for the Property will be prepared by Briarwood as Managing Member and submitted to the Members for approval no later than November 15 of each calendar year for the following fiscal year. Budget approval will require the affirmative vote of Members holding more than 50% of the aggregate Percentage Interests (a "Majority-in-Interest").
It is important to note the practical implications of this threshold for Briarwood. Because Briarwood holds exactly 50% of the Percentage Interests, it cannot approve the budget unilaterally — it must secure the concurrence of at least one co-investor. Conversely, neither Cedarpoint (30%) nor Halcyon Ridge (20%) can approve a budget without Briarwood's affirmative vote. This structure ensures that the budget reflects a consensus between Briarwood and at least one co-investor while preventing any single co-investor from unilaterally blocking a budget.
To address the risk of a budget impasse, we recommend including a "deemed approval" mechanism: if the Members fail to approve a budget by a specified date (e.g., December 31 of the preceding year), the prior year's approved budget shall become the default operating budget for the new fiscal year, with all line items adjusted upward by the lesser of (i) the annual percentage increase in the Consumer Price Index (CPI) for the New York-Newark-Jersey City metropolitan statistical area, or (ii) 3.0%. This escalation mechanism ensures continuity of operations and prevents a governance deadlock from disrupting property management.
D. Negotiation Recommendations on Governance
The unanimous consent requirement for Major Decisions is a standard feature of club-deal joint ventures and, while somewhat restrictive of Briarwood's operational flexibility, is appropriate given the nature of the co-investor relationship. Each Member is contributing meaningful equity to the venture, and the unanimous consent mechanism ensures that no Member's investment is subjected to material risk decisions without its affirmative approval.
That said, we recommend negotiating for clear delineation between Major Decisions (requiring unanimous consent) and the Managing Member's day-to-day operational authority. Specifically, the Operating Agreement should confirm that Briarwood has sole authority over:
(a) all day-to-day property operations, including routine maintenance, repairs, and tenant relations;
(b) all leasing decisions below the Major Decision threshold (i.e., residential leases and any commercial lease with annual rent below the specified threshold);
(c) all expenditures within the approved annual budget; and
(d) routine administrative matters, including bank account management, vendor selection for budgeted items, and coordination with the lender on standard reporting obligations.
Capital Call Threshold. The $500,000 per 12-month period capital call threshold is relatively low for a $40 million asset. In practice, an unexpected capital need — such as a major building system failure, environmental remediation requirement, or accelerated lease-up expenditure — could easily approach or exceed this threshold. We anticipate that Whitfield Archer & Crane LLP may push to lower the threshold further, perhaps to $250,000 or $350,000. We recommend holding at $500,000 as the minimum threshold for a Major Decision capital call, noting that any capital call within the threshold still requires Managing Member authorization and must be for property-related purposes.
Emergency Expenditure Carve-Out. The $250,000 unbudgeted expenditure cap is restrictive and could hamper Briarwood's ability to respond promptly to emergencies. We recommend negotiating an express carve-out for emergency expenditures necessary to address life/safety issues, prevent imminent property damage, or comply with governmental orders, without regard to the $250,000 cap, provided that Briarwood delivers written notice to the co-investors within 48 hours of authorizing the expenditure. This carve-out is reasonable and protects all Members' interests by ensuring that the Property is properly maintained even in exigent circumstances.
VII. REMOVAL OF MANAGING MEMBER
The Operating Agreement will include provisions governing the removal of Briarwood as Managing Member. Given Briarwood's central role in the venture — as majority equity contributor, asset manager, and personal guarantor on the senior loan — the removal provisions must be carefully negotiated to protect Briarwood's position while providing appropriate accountability to the co-investors.
Standard for Removal. Briarwood may be removed as Managing Member only "for Cause." This is a protective standard that prevents the co-investors from removing Briarwood in the absence of a triggering event constituting Cause, even if they are dissatisfied with Briarwood's management or disagree with Briarwood's strategic decisions. Any disagreements short of Cause should be addressed through the governance mechanisms (Major Decisions, budget approval) rather than through removal.
Voting Threshold. Removal for Cause requires an affirmative vote of Members holding at least 66.67% of the non-Briarwood Percentage Interests. Because the non-Briarwood Members collectively hold 50% of the total Percentage Interests (Cedarpoint at 30% and Halcyon Ridge at 20%), and 66.67% of 50% is 33.33%, both Cedarpoint and Halcyon Ridge must vote in favor of removal for the threshold to be satisfied. In practical terms, this means that Briarwood cannot be removed unless both co-investors unanimously agree to removal — a single co-investor acting alone cannot effect removal, even for Cause.
Definition of "Cause." We propose that "Cause" be defined to include the following events:
(a) Fraud, embezzlement, or intentional misappropriation of JV funds or assets by Briarwood or any of its principals;
(b) Willful misconduct by Briarwood in the performance of its duties as Managing Member that results in material harm to the JV or the Property;
(c) Gross negligence by Briarwood in the performance of its Managing Member duties that results in material harm to the JV or the Property;
(d) A material breach by Briarwood of any provision of the Operating Agreement that remains uncured for a period of thirty (30) calendar days following delivery of written notice from the non-Briarwood Members specifying the nature of the breach in reasonable detail;
(e) The conviction of Briarwood, Elliot J. Briarwood, or any principal of Briarwood of a felony under federal or state law; and
(f) The voluntary or involuntary filing of a petition for relief under the U.S. Bankruptcy Code or any analogous state insolvency law by or against Briarwood Family Office LLC or Elliot J. Briarwood individually, unless an involuntary petition is dismissed within sixty (60) days of filing.
Recommendation. The "for Cause" removal standard, coupled with the requirement that both co-investors concur, is strongly protective of Briarwood's position as Managing Member. We anticipate that Whitfield Archer & Crane LLP will push for a broader definition of Cause — for example, by adding failure to meet specified performance benchmarks, persistent failure to deliver timely reporting, or loss of required licenses or permits. More aggressively, co-investors may seek a "without Cause" removal right, potentially with modified economics (e.g., permitting removal without Cause but with continued payment of Briarwood's promote or a buyout of Briarwood's interest at a formula price).
We strongly recommend resisting any "without Cause" removal mechanism. The for-Cause standard with a 30-day cure period is appropriate given the magnitude of Briarwood's responsibilities and, critically, the fact that Elliot J. Briarwood has personally guaranteed the senior loan. A without-Cause removal could leave Mr. Briarwood exposed as a guarantor on a loan for a venture in which he no longer has management authority — a profoundly inequitable outcome.
Interplay with Loan Guaranty. This leads to a critical structural point: the Operating Agreement should include a provision requiring that, in the event Briarwood is removed as Managing Member (whether for Cause or otherwise), the non-Briarwood Members and any successor Managing Member must, as a condition to the effectiveness of the removal, arrange for a replacement non-recourse carveout guaranty satisfactory to Pinnacle Fidelity Bank, N.A. in substitution for Mr. Briarwood's personal guaranty. Until such replacement guaranty is delivered and accepted by the lender, the removal of Briarwood should not become effective. This provision is essential to protect Mr. Briarwood from ongoing personal exposure on a loan over which he would no longer have management control or oversight.
VIII. TRANSFER RESTRICTIONS AND RIGHT OF FIRST OFFER
A. General Transfer Restriction
The Operating Agreement will include customary transfer restrictions prohibiting any Member from transferring, assigning, pledging, or otherwise disposing of all or any portion of its Membership Interest in the JV Entity except in compliance with the Right of First Offer procedure described below or in connection with a Permitted Transfer.
Permitted Transfers. The following categories of transfers will be exempted from the ROFO procedure:
(a) Transfers by any Member to an affiliate of such Member (i.e., an entity that directly or indirectly controls, is controlled by, or is under common control with, the transferring Member);
(b) Transfers by any Member to a family trust established for the benefit of the individual beneficial owners of such Member, or to immediate family members of such beneficial owners, for estate planning purposes; and
(c) Transfers required by operation of law, including transfers resulting from the death or incapacity of an individual beneficial owner of a Member.
In each case, the transferee must (i) assume all obligations of the transferring Member under the Operating Agreement, (ii) deliver an executed joinder agreement in form and substance reasonably acceptable to the other Members, and (iii) provide customary representations regarding its authority and capacity. The transferring Member shall remain jointly and severally liable with the transferee for all obligations arising prior to the effective date of the transfer.
B. Right of First Offer (ROFO)
If a Member desires to transfer its Membership Interest other than through a Permitted Transfer (such Member, the "Offering Member"), the following procedure will apply:
Step 1 — Offer Notice. The Offering Member must first deliver a written offer notice (the "ROFO Notice") to the other Members (collectively, the "Non-Transferring Members"), specifying (i) the number and percentage of Membership Interests proposed to be transferred, (ii) the proposed purchase price, (iii) the proposed payment terms and other material terms of the transfer, and (iv) the identity of any proposed third-party transferee, if known.
Step 2 — Election Period. The Non-Transferring Members shall have a period of thirty (30) calendar days following receipt of the ROFO Notice (the "ROFO Period") to elect, by written notice to the Offering Member, to purchase all (but not less than all) of the Membership Interests specified in the ROFO Notice on the same price and material terms set forth therein.
Step 3 — Pro Rata Allocation. If more than one Non-Transferring Member elects to purchase, the offered Membership Interests shall be allocated among the electing Members pro rata in proportion to their respective Percentage Interests (or as they may otherwise agree among themselves).
Step 4 — Third-Party Sale. If no Non-Transferring Member elects to purchase during the ROFO Period, the Offering Member shall be free to sell the offered Membership Interests to a third party at a price not less than 95% of the price stated in the ROFO Notice, on terms no more favorable to the purchaser than those stated in the ROFO Notice, provided that such sale is consummated within 180 calendar days following the expiration of the ROFO Period. If the sale is not consummated within such 180-day period, the Offering Member must repeat the ROFO procedure before any subsequent transfer.
Recommendation. The 30-day ROFO period is standard and provides Non-Transferring Members with adequate time to evaluate and respond to a potential transfer. We anticipate that co-investors may push for a right of first refusal ("ROFR") structure rather than a ROFO. Under a ROFR, the Offering Member would first negotiate and execute a definitive agreement with a third-party purchaser and then offer the Non-Transferring Members the right to purchase on the same terms. While a ROFR provides the Non-Transferring Members with the benefit of a market-tested price, it is significantly more burdensome for the Offering Member because the existence of the ROFR may deter potential third-party purchasers who are unwilling to invest the time and expense of negotiating a transaction that may ultimately be preempted.
We recommend maintaining the ROFO structure. A ROFO is more favorable to any potential transferor — including Briarwood — because it allows the Offering Member to set the price and terms without first having to identify and negotiate with a third party. The 95% floor on third-party sales provides adequate protection to the Non-Transferring Members by ensuring that the Offering Member does not use the ROFO process to establish a reference price and then sell at a deep discount to a favored third party.
IX. BUY-SELL (SHOTGUN) PROVISION
The Operating Agreement will include a buy-sell or "shotgun" mechanism that provides each Member with a market-tested exit path in the event of an irreconcilable disagreement among the Members regarding the future direction of the investment. The shotgun mechanism operates as follows:
Trigger Date. The buy-sell mechanism may not be invoked until after the third anniversary of the closing date (i.e., after approximately June 5, 2026, assuming a closing in early June 2023). This minimum holding period ensures that the Members commit to the investment for a reasonable initial term and do not use the shotgun mechanism to exit prematurely or opportunistically during the early stages of the venture's business plan.
Initiation. After the trigger date, any Member may initiate the buy-sell process by delivering a written buy-sell notice (the "Shotgun Notice") to all other Members. The Shotgun Notice must specify a single price for the entire Property (the "Shotgun Price"), which will serve as the basis for calculating the value of each Member's interest.
Election Period. The receiving Members shall have a period of sixty (60) calendar days following receipt of the Shotgun Notice (the "Response Period") to elect, by written notice to the initiating Member, one of the following:
(a) Election to Sell. The receiving Member(s) may elect to sell their respective Membership Interests to the initiating Member at a price derived from the Shotgun Price, calculated on a pro rata basis to reflect each selling Member's Percentage Interest (i.e., the selling Member receives its pro rata share of the implied equity value, calculated as the Shotgun Price less outstanding debt and transaction costs); or
(b) Election to Buy. The receiving Member(s) may elect to purchase the initiating Member's Membership Interest at the same pro rata price derived from the Shotgun Price.
Conflicting Elections. If there are two non-initiating Members (as in this JV) and they make different elections — one electing to sell and the other electing to buy — the Member(s) electing to buy shall have priority. If neither non-initiating Member elects to buy within the Response Period, the initiating Member shall have the right to purchase all other Members' interests at the Shotgun Price.
Mechanics. The closing of the buy-sell transaction shall occur within sixty (60) days following the expiration of the Response Period. The purchasing Member(s) must have the financial capacity to close and must arrange any necessary financing on their own behalf.
Analysis. The shotgun mechanism is a well-established feature of joint venture agreements and provides an effective exit valve in the event of deadlock. However, it inherently favors the better-capitalized party, as the ability to set a price and to respond to a buy-sell notice depends on the financial resources available to the Member. In this venture, Briarwood is the largest and most well-capitalized Member, which means that the shotgun mechanism is structurally advantageous to Briarwood. Briarwood can initiate the process with confidence that it has the resources to close on a purchase of the co-investors' interests if they elect to sell, and Briarwood can respond to any co-investor-initiated shotgun with the financial capacity to either buy or be bought out on favorable terms.
Recommendation. We anticipate that co-investors may seek protective modifications to the shotgun mechanism, including:
(i) A "Texas Shootout" variant, in which all Members submit sealed bids and the highest bidder has the right to purchase the other Members' interests — this approach reduces the informational advantage of the initiating party but introduces complexity and potential gamesmanship;
(ii) A cooling-off period (e.g., 30 days of mandatory mediation or good-faith negotiation) before the shotgun can be invoked, to encourage resolution short of the buy-sell mechanism;
(iii) A requirement that the Shotgun Price be supported by a third-party appraisal, rather than being set unilaterally by the initiating Member.
We recommend maintaining the simple shotgun structure with the 60-day response period as proposed. The simplicity of the mechanism is a virtue — it provides certainty and minimizes the transaction costs associated with the exit process. The 60-day Response Period provides adequate time for receiving Members to arrange financing and make an informed decision. Should co-investors press aggressively for a Texas Shootout or appraisal requirement, we can discuss the relative merits with Briarwood at that time, but our initial position should be to preserve the traditional shotgun structure.
X. CAPITAL CALLS AND DILUTION
A. Capital Call Procedure
The Operating Agreement will include provisions authorizing the Managing Member (Briarwood) to issue capital calls to the Members to fund property-related needs, including operating shortfalls, capital improvements, loan paydowns or defeasance costs, emergency repairs, and other purposes approved under the Operating Agreement or by the Members in accordance with the governance provisions.
Capital calls will be subject to the following limitations and procedures:
• Capital calls resulting in aggregate additional capital contributions exceeding $500,000 in any rolling 12-month period constitute a Major Decision and require unanimous consent of all Members (see Section VI.B.2).
• Capital calls within the $500,000 annual threshold require only Managing Member authorization, without the need for Member consent. This authority enables Briarwood to respond promptly to routine capital needs without the delay of a full Member approval process.
• Each Member is obligated to fund its pro rata share of any capital call in proportion to its Percentage Interest.
• Members must fund their respective capital call amounts within fifteen (15) business days of receipt of the capital call notice from the Managing Member. The capital call notice shall specify the aggregate amount of the call, each Member's pro rata share, the purpose of the call, and the date by which funding is required.
B. Dilution for Non-Contributing Members
If any Member (a "Non-Contributing Member") fails to fund its pro rata share of a duly authorized capital call within the required 15-business-day period, the Operating Agreement will provide for the following consequences:
Funding by Contributing Members. The Members who have timely funded their capital call amounts (the "Contributing Members") shall have the right, but not the obligation, to fund the Non-Contributing Member's shortfall. If more than one Contributing Member elects to fund the shortfall, the shortfall shall be allocated among the electing Contributing Members pro rata to their respective Percentage Interests (or as they may otherwise agree).
Punitive Dilution. The Non-Contributing Member will be diluted on a 1.5x punitive basis. This means that the Contributing Members who fund the Non-Contributing Member's shortfall will receive credit in their capital accounts for 1.5 times the amount they contribute on behalf of the Non-Contributing Member. The Percentage Interests of all Members will then be recalculated based on the Members' adjusted deemed total capital contributions (i.e., actual capital contributions plus any punitive credits).
Illustrative Example. Assume that a $500,000 capital call is issued, with the following pro rata allocations: Briarwood $250,000 (50%), Cedarpoint $150,000 (30%), Halcyon Ridge $100,000 (20%). If Halcyon Ridge fails to fund its $100,000 share and Briarwood elects to fund the shortfall, Briarwood would receive capital account credit of $150,000 ($100,000 × 1.5). The Percentage Interests would then be recalculated based on adjusted capital contributions:
Note: This example is illustrative and assumes Briarwood funds the entire shortfall. Actual calculations would follow the precise methodology specified in the Operating Agreement.
The 1.5x punitive dilution serves as both a deterrent against capital call defaults and a compensatory mechanism for the Contributing Members who bear the additional risk and financial burden of funding another Member's obligation.
Recommendation. The 1.5x punitive dilution multiple is standard in institutional joint ventures and has been upheld as commercially reasonable in various contexts. We anticipate that co-investors may push for a lower multiple (e.g., 1.25x) or propose an alternative remedy structure — specifically, a "loan alternative" in which the shortfall amount is treated as a loan from the Contributing Members to the Non-Contributing Member at a penalty interest rate (e.g., 15% per annum or prime plus 5%), with the loan repayable from subsequent distributions, rather than resulting in immediate and permanent dilution of the Non-Contributing Member's interest.
We recommend maintaining the 1.5x dilution structure as the primary remedy for capital call defaults. The dilution approach is simpler, self-executing, and provides stronger incentive for timely funding than a loan alternative. However, as a reasonable concession to the co-investors, we are prepared to offer a 10-business-day cure period before the dilution takes effect. Under this approach, if a Member fails to fund within the initial 15-business-day period, the Non-Contributing Member would receive a written default notice and an additional 10 business days to cure the default before the Contributing Members may exercise their right to fund the shortfall and trigger the punitive dilution. This additional cure period provides a safety net against inadvertent defaults (e.g., wire transfer delays or administrative errors) while preserving the integrity of the dilution mechanism.
XI. REPORTING OBLIGATIONS
A. Financial Reporting
Transparency and timely reporting are essential to maintaining trust and confidence among the Members of a club-deal joint venture. The Operating Agreement will require the following reporting deliverables:
Monthly Reporting. Property-level operating reports shall be delivered to all Members within twenty (20) calendar days following the end of each calendar month. These monthly reports will be prepared by Summit Property Group LLC in its capacity as Property Manager and will be reviewed and approved by Briarwood as Managing Member before distribution. The monthly reports shall include, at a minimum: (i) a summary of gross revenue, operating expenses, and net operating income for the month; (ii) a comparison of actual results to the approved annual budget; (iii) an occupancy report, including a summary of new leases, renewals, and move-outs; (iv) an accounts receivable aging report; and (v) a summary of any material capital expenditures or extraordinary items.
Quarterly Reporting. Unaudited financial statements of the JV Entity shall be delivered to all Members within forty-five (45) calendar days following the end of each fiscal quarter. The quarterly financial statements shall include: (i) a balance sheet of the JV Entity and PropCo as of the end of the quarter; (ii) an income statement for the quarter and year-to-date; (iii) a statement of cash flows for the quarter and year-to-date; (iv) a variance analysis comparing actual results to the approved annual budget, with narrative explanations for any material variances (defined as deviations of 5% or more from any major budget line item); and (v) a summary of capital account balances and unreturned capi