Harrison,
Thank you again for circulating the initial draft of the Senior Mortgage Loan Agreement on May 1. We have now completed our review on behalf of MTDC, and I am attaching the following:
1. **Redline — Senior Mortgage Loan Agreement** (C&H Marked Draft dated 05-08-2025) (filename: SeniorLoanAgreement_SCRedline_050825.docx) 2. **Open Issues List — Senior Mortgage Loan** (filename: OpenIssuesList_SeniorLoan_050825.pdf)
The redline reflects Borrower's comments throughout the document, but I want to flag the principal areas of disagreement or open business points below so that you and Ken Pryor's team can focus attention where it is most needed. These are also set out in greater detail in the Open Issues List.
**1. Recourse Carve-Outs (Article 9)**
The current draft contains several non-standard recourse carve-outs that, in our view, go well beyond market for a construction financing of this type. In particular:
- The "voluntary" bankruptcy carve-out as drafted sweeps in any filing by any SPE entity in the organizational chain above HYW Mortgage LLC — this is unworkable given MTDC's broader corporate structure and the number of affiliated entities. We have proposed limiting the carve-out to HYW Mortgage LLC and its direct parent. - The environmental carve-out (Section 9.1(f)) creates full recourse liability for *any* environmental condition at the Project Site, without regard to whether the condition pre-dates the loan or was caused by Borrower. We have revised this to carve back conditions that are disclosed in the Phase I ESA (Apex Environmental report AEC-NY-25-0337 dated March 20, 2025) or that arise from third-party acts outside Borrower's control. - The draft treats a breach of the single-purpose entity covenants as a springing full recourse event without a notice-and-cure period. We have proposed a 10-business-day cure right for inadvertent or technical SPE covenant breaches.
**2. Extension Conditions (Section 2.6)**
The term sheet dated February 28, 2025 contemplates two one-year extension options beyond the initial June 15, 2029 maturity. The draft loan agreement adds several extension conditions that were not in the term sheet, including:
- A requirement to achieve 70% economic occupancy as a condition to the first extension — the term sheet is silent on an occupancy threshold for extensions. We note that the leasing threshold of 85% economic occupancy does not apply until 30 months post-first TCO (i.e., September 15, 2029), and imposing a 70% test at initial maturity is inconsistent with the projected lease-up timeline. - A fresh appraisal showing combined LTV at or below 65%. The term sheet LTV covenant is 70% combined (tested annually). We believe the extension appraisal threshold should match the ongoing covenant at 70%, not impose a tighter standard at a point when the asset is still in lease-up. - We have also requested that the extension fee be capped at 0.25% of the then-outstanding principal balance, consistent with our understanding of the commercial terms.
**3. Cash Management / Sweep Triggers (Section 5.3)**
The draft provides for a hard lockbox with springing cash sweep when DSCR falls below 1.15x on a trailing twelve-month basis. The term sheet specifies a 1.10x DSCR trigger. We have conformed the draft to the term sheet at 1.10x. Additionally:
- The draft's cure mechanism requires Borrower to post cash or a letter of credit equal to 110% of the shortfall to release the sweep — we believe 105% is market and have revised accordingly. - The sweep waterfall in Section 5.3(c) applies excess cash first to an operating expense reserve before debt service. We have reordered the waterfall to conform to the standard priority: (i) debt service, (ii) required reserves, (iii) operating expenses, (iv) then to Borrower.
**4. Reserve Disbursement Mechanics (Article 6)**
Several of the reserve disbursement provisions require Agent's "approval in its sole and absolute discretion." MTDC's position is that all reserve disbursement approvals should be subject to a reasonableness standard. We have revised throughout. Specific points:
- The TI/LC reserve (Section 6.4) conditions disbursement on Agent's approval of the tenant's creditworthiness — we have added a deemed-approval for any tenant with a credit rating of BBB- or higher (or government tenants). - Interest reserve draw conditions (Section 6.2) require that no Event of Default be continuing; we have requested that this be limited to monetary Events of Default, so that a minor technical default does not freeze interest reserve funding during the construction period. - The capital expenditure reserve (Section 6.5) contains a $250,000 threshold per disbursement request — we have proposed increasing this to $500,000 to reduce administrative burden given the scale of the Project.
**5. Construction Advance Conditions (Article 7)**
This is the area where the most work remains. Key issues:
- The draft requires that Borrower certify at each advance that total hard costs incurred-to-date are within 95% of the line-item budget in the GMP contract (Cobalt, CCG-HYW-2025-001, $412 million). Given the scale and duration of construction, a 5% line-item variance threshold is too tight; we have proposed a 10% variance at the line-item level, with a hard cap at the aggregate GMP amount. - Retainage is set at 10% through substantial completion. Market for projects of this size is typically 5% after 50% completion of the relevant trade, stepping to 10% only for punchlist items. We have proposed conforming language. - The draft requires an independent construction monitor's certification for every draw over $2 million. Given that the average monthly draw will be approximately $13-15 million over the construction period, this threshold is impractical. We have proposed $5 million as the trigger for independent monitor certification. - Section 7.4(e) requires Borrower to deliver a title continuation showing no new liens at each draw. We accept this requirement but have asked that Borrower have a 15-business-day cure period to bond or discharge any mechanic's lien filed by a subcontractor before it constitutes a failure of a draw condition.
**Other Items**
The Open Issues List also covers a number of additional points including subordination/recognition of the ground lease (CRFN 2020000198762), insurance requirements (we are coordinating with Brian Jessup at Castleton on the builder's risk coverage sizing), transfer/assumption provisions, casualty/condemnation thresholds, and certain representations regarding MTDC's status as a governmental instrumentality. Sylvia Hartwell from our tax group will be providing separate comments on the tax-related provisions early next week.
We are mindful that the parties are targeting a June 15 closing. To stay on track, we would suggest scheduling a call with both deal teams early next week — perhaps Tuesday or Wednesday — to walk through the major business points before the next round of drafts circulates. I have availability both days after 10:00 AM. If it would be helpful, we are also happy to set up a separate call with Natasha Ivanovic at VRB to address intercreditor issues in parallel.
Please let me know if you have any difficulty opening the attachments or if you would like to discuss any of the foregoing in advance of a group call.
Best regards,
Grace Nakamura Senior Associate Calderwood & Harkness LLP One Liberty Plaza, 55th Floor New York, NY 10006 T: (212) 455-8274 gnakamura@calderwoodharkness.com
C&H Matter No. 1031-00004
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