1031-00004 · Hudson Yards West Mortgage LLC · Deal Analysis

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Douglas Fairchild, Partner; Angela Fontaine, Partner

FROM: Grace Nakamura, Senior Associate; Rafael Dominguez, Associate

DATE: March 1, 2025

RE: New York Mortgage Recording Tax Analysis — Senior Mortgage Loan ($475,000,000), Hudson Yards West Project, 450 West 34th Street, New York, NY (Block 729, Lots 1, 5, 12, 15)

CLIENT/MATTER: Metropolitan Transit Development Corp. / C&H Matter No. 1031-00004

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT. This memorandum is a confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation or in connection with the provision of legal advice. It is intended solely for the use of the addressees and other attorneys at Drummond & Fenwick LLP working on this matter. Do not distribute, copy, or disclose to any third party without the prior written consent of Drummond & Fenwick LLP.

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I. Executive Summary

This memorandum analyzes the New York State and New York City mortgage recording tax ("MRT") applicable to the recording of the $475,000,000 senior mortgage (the "Senior Mortgage") to be granted by Hudson Yards West Mortgage LLC ("HYW Mortgage" or the "Mortgage Borrower"), a Delaware limited liability company, in favor of Ironclad National Bank, N.A. ("Ironclad" or the "Agent"), as administrative agent for a syndicate of senior lenders, encumbering the real property located at 450 West 34th Street, New York, New York 10001, comprising Manhattan Block 729, Lots 1, 5, 12, and 15 (the "Property"). HYW Mortgage is a single-purpose entity that is wholly owned, indirectly, by Metropolitan Transit Development Corp. ("MTDC"), the client. The Senior Mortgage will secure a $475,000,000 senior construction loan that will finance the development of the Hudson Yards West mixed-use project (the "Project").

The target closing date for the Senior Mortgage is June 15, 2025. The Senior Mortgage is to be recorded in the Office of the City Register of the City of New York, New York County, through the Automated City Register Information System ("ACRIS").

Headline MRT Exposure. At the combined statutory rate of 2.80% applicable to commercial mortgages of $500,000 or more securing real property in New York City, the gross MRT liability is $13,300,000 (i.e., $475,000,000 × 2.80%). This figure represents the aggregate of New York State basic tax, New York State additional tax, New York City basic tax, New York City additional tax, and New York City special additional tax, each as described in detail in Sections III and X of this memorandum.

Principal Conclusions. Our analysis yields the following principal conclusions:

(a) Government-Instrumentality Exemption Unavailable. The government-instrumentality exemption under N.Y. Tax Law § 252 is unlikely to shelter HYW Mortgage, a private-form Delaware single-purpose entity, from MRT liability, notwithstanding MTDC's status as a government instrumentality organized under the laws of the State of Illinois. Section 252 is limited in its application to New York State governmental entities and federal instrumentalities, and even if MTDC were deemed to qualify, its exempt status would not pass through to the privately organized SPE borrower. See Section IV, infra.

(b) No CEMA Savings Available. No existing recorded mortgage encumbers the Property. Accordingly, a standard Consolidation, Extension and Modification Agreement ("CEMA") under N.Y. Real Property Law § 255 and N.Y. Banking Law § 6-h — the principal MRT mitigation tool in New York real estate finance — is unavailable for this transaction. A CEMA consolidation yielding "spread" savings requires an existing mortgage to consolidate into the new mortgage, and no such mortgage exists. Nor is a "purchased CEMA" or third-party mortgage acquisition strategy feasible, because any existing mortgage to be consolidated must encumber the same Property. See Section V, infra.

(c) Alternative Structures Offer No Material Relief. A split-mortgage or multi-note structure does not reduce the aggregate MRT because the tax is assessed on the total principal secured regardless of the number of instruments. A gap mortgage or step-up structure merely defers a portion of MRT without reducing the aggregate liability and is inconsistent with Ironclad's term sheet requirements. An Industrial Development Agency ("IDA") conduit structure could theoretically achieve full MRT exemption but is impractical given the transaction timeline, the out-of-state status of MTDC, and anticipated lender resistance. See Section VI, infra.

(d) Recommend Budgeting Full MRT Liability. We recommend that MTDC budget the full $13,300,000 MRT liability as a borrower closing cost, to be funded from the MTDC equity contribution at closing. This amount should be included in the sources-and-uses closing statement and reflected in the Closing Costs Estimate circulated separately.

(e) Fallback Strategies and Outstanding Diligence. We identify certain fallback strategies, including the incorporation of CEMA-facilitation provisions in the senior loan documents to preserve savings at any future refinancing, as well as outstanding diligence items that should be resolved prior to closing. See Sections V.D, VII, and XI, infra.

This memorandum should be read in conjunction with the Closing Costs Estimate circulated separately by the transaction team on February 25, 2025. We note that the $200,000,000 mezzanine loan from Granite Peak Capital Partners, LP (the "Mezzanine Lender") is secured by a pledge of membership interests in HYW Mortgage LLC (a UCC Article 9 security interest), not by a mortgage on real property, and therefore does not trigger MRT. See Section VIII, infra.

II. Scope and Assumptions

This memorandum is based upon, and our analysis proceeds from, the following facts, assumptions, and defined terms. To the extent any assumption is incorrect or any fact changes, our conclusions should be re-evaluated and may differ.

Mortgage Borrower. Hudson Yards West Mortgage LLC ("HYW Mortgage" or the "Mortgage Borrower") is a Delaware limited liability company organized as a single-purpose, bankruptcy-remote entity. Its sole member is Hudson Yards West Mezzanine LLC ("HYW Mezzanine"), also a Delaware limited liability company, whose sole member is Metropolitan Transit Development Corp. ("MTDC"). The SPE structure — comprising two intermediate LLCs between MTDC and the Property — was required by both the Ironclad term sheet and the Granite Peak mezzanine term sheet to satisfy customary bankruptcy-remoteness and structural subordination requirements. HYW Mortgage holds the leasehold interest in the Property and is the entity that will grant the Senior Mortgage.

Mortgagee. Ironclad National Bank, N.A., a national banking association, in its capacity as administrative agent for the senior lending syndicate. The participants in the senior lending syndicate are: (i) Ironclad National Bank, N.A.; (ii) Ridgeline Savings Bank; (iii) Atlas Mutual Insurance Company; (iv) Commonwealth Trust Company; (v) Harborview Federal Savings Bank; and (vi) Meridian Pacific Bank. Ironclad will hold the mortgage and act as agent for all syndicate participants.

Secured Obligation. The Senior Mortgage will secure a $475,000,000 senior mortgage construction loan (the "Senior Loan"). The material economic terms, as set forth in the Ironclad term sheet dated February 28, 2025, include: (i) interest rate of Term SOFR plus 425 basis points; (ii) initial maturity date of June 15, 2029; (iii) two one-year extension options through June 15, 2030 and June 15, 2031, respectively, subject to satisfaction of extension conditions; and (iv) customary construction loan disbursement mechanics subject to an approved budget and draw schedule.

Property. The Senior Mortgage will encumber the fee and/or leasehold interest in the real property located at 450 West 34th Street, New York, New York 10001, comprising Manhattan Block 729, Lots 1, 5, 12, and 15. The Property is subject to a ground lease from New York City Economic Development Corporation ("NYCEDC") to MTDC, recorded on June 1, 2020, in the Office of the City Register of the City of New York, New York County (CRFN 2020000198762) (the "Ground Lease"). HYW Mortgage holds its interest in the Property through an assignment of the leasehold from MTDC (or through the chain of entity ownership). The Senior Mortgage will encumber both the leasehold interest under the Ground Lease and any fee interest held or to be acquired by HYW Mortgage, if any.

No Existing Mortgage. We assume, based on our preliminary review and the initial title report from Sentinel Title & Escrow Company, that no existing mortgage, building loan agreement, or project loan mortgage currently encumbers the Property. This assumption must be confirmed upon receipt of the final title commitment. We have ordered a title search through Sentinel Title & Escrow Company (Title Commitment No. STN-2025-MH-04178, search ordered March 15, 2025), and we flag the confirmation of this assumption as an outstanding diligence item. If an existing mortgage is identified, the CEMA analysis in Section V of this memorandum would need to be revisited, and significant MRT savings could potentially be achieved.

Building Loan. We assume that the Senior Loan is a "building loan" within the meaning of N.Y. Lien Law Article 2, as the loan proceeds will be used to finance the construction of improvements on the Property. Accordingly, a building loan agreement will be recorded simultaneously with the Senior Mortgage in compliance with N.Y. Lien Law § 22. The interaction between building loan agreement recording requirements and MRT is discussed in Section VII, infra.

Applicable Law. The MRT analysis in this memorandum is governed by the following statutory and regulatory authorities:

• N.Y. Tax Law Article 11 (§§ 250–262), as amended, governing the imposition, computation, and exemptions applicable to the New York State mortgage recording tax;

• N.Y.C. Administrative Code Title 11, Chapter 26 (§§ 11-2601 et seq.), as amended, governing the imposition, computation, and exemptions applicable to the New York City mortgage recording tax;

• N.Y. Real Property Law § 255, governing consolidation, extension, and modification agreements;

• N.Y. Banking Law § 6-h, governing CEMA transactions involving banking organizations;

• N.Y. Lien Law Articles 2 and 3-A, governing building loan agreements and trust fund requirements;

• Applicable regulations, rulings, and advisory opinions of the New York State Department of Taxation and Finance ("NYSDTF") and the New York City Department of Finance ("NYC DOF"); and

• N.Y. Real Property Law § 5-1401, governing choice of law in contracts relating to New York real property.

Scope Limitation. This memorandum addresses only the MRT applicable to the Senior Mortgage. We do not analyze New York State or New York City real property transfer taxes (RPT / RPTT), which are addressed in a separate memorandum being prepared concurrently. We also do not analyze general state or local income tax, franchise tax, or sales tax issues. Our analysis of the mezzanine loan is limited to confirming that its security structure does not trigger MRT (Section VIII).

III. Applicable Mortgage Recording Tax Framework

New York imposes a mortgage recording tax on the privilege of recording a mortgage on real property located within the State. The tax is composed of several components — a state basic tax, a state additional tax, and a city tax (itself comprising multiple components) — each of which is described below as applied to the Senior Mortgage.

A. New York State Basic Tax (Tax Law § 253)

The New York State basic mortgage recording tax is imposed by N.Y. Tax Law § 253(1), which provides that a tax is imposed on the privilege of recording each mortgage of real property situated within the State. For mortgages on real property within the five boroughs of New York City, the rate of the basic tax is $0.50 per $100 of principal debt or obligation secured, which is equivalent to a rate of 0.50%.

The statutory basis for the tax is the "principal debt or obligation" secured by the mortgage at the time of recording. N.Y. Tax Law § 253(1). The tax attaches upon the "recording" of the mortgage — that is, the taxable event is the presentation of the mortgage for recording in the Office of the City Register (or, in counties outside of New York City, the office of the county clerk). The tax must be paid at the time of recording, and the City Register will not accept a mortgage for recording unless the tax is paid or an exemption is demonstrated.

As applied to the Senior Mortgage securing a principal obligation of $475,000,000, the New York State basic tax is calculated as follows:

$475,000,000 ÷ $100 × $0.50 = $2,375,000

The definition of "mortgage" for purposes of the MRT is set forth in N.Y. Tax Law § 250(3), which provides that the term "mortgage" includes "every mortgage or deed of trust that lies upon real property situate within the state, including mortgages of a leasehold interest." The Senior Mortgage, which encumbers the leasehold interest in the Property (and any fee interest held by HYW Mortgage), is a "mortgage" within the meaning of § 250(3). The fact that the mortgage encumbers a leasehold interest rather than a fee interest does not affect the applicability or rate of the MRT.

Additionally, we note that N.Y. Tax Law § 250(5) defines "principal debt or obligation" to include "the total amount of the debt or obligation secured by a mortgage at the date of the execution thereof, or which under the terms of the mortgage may be secured thereby at any future date." Because the Senior Loan is a construction loan with a stated commitment amount of $475,000,000, the MRT is payable on the full $475,000,000 commitment at the time of recording, regardless of the amount actually advanced at closing. This is a well-established principle that has been consistently applied by the NYSDTF and the courts. The MRT does not depend on the amount actually disbursed; it is computed on the maximum principal amount the mortgage secures or may secure.

B. New York State Additional Tax (Tax Law § 253-a)

In addition to the basic tax, N.Y. Tax Law § 253-a(1) imposes an additional tax of $0.25 per $100 of principal debt or obligation secured (0.25%) on any mortgage of real property within New York City where the principal debt or obligation secured is $500,000 or more. This threshold is easily exceeded in the present transaction, as the $475,000,000 principal obligation far exceeds the $500,000 threshold.

As applied to the Senior Mortgage:

$475,000,000 ÷ $100 × $0.25 = $1,187,500

A distinctive feature of the § 253-a additional tax is its payment allocation. By statute, and by longstanding custom in New York real estate practice, the additional tax imposed by § 253-a is payable by the "mortgagee" (i.e., the lender). N.Y. Tax Law § 253-a(2). In contrast, the basic tax under § 253 is payable by the "mortgagor" (i.e., the borrower), unless otherwise agreed by the parties.

However, the statutory allocation of payment responsibility between mortgagor and mortgagee is a matter of form, not necessarily of economic substance, between the parties. The Ironclad term sheet dated February 28, 2025 provides that the Borrower (HYW Mortgage, as guaranteed or supported by MTDC) bears all recording costs, including the full MRT. Accordingly, even though the § 253-a additional tax is nominally payable by Ironclad (as mortgagee/administrative agent), the economic cost will be borne by the Borrower and, ultimately, by MTDC. This allocation should be confirmed and clearly documented in the final loan agreement and closing instructions. We will coordinate with Clearfield & Associates LLP (Harrison Whitmore, counsel to Ironclad) to ensure that the reimbursement mechanic is properly reflected in the closing statement.

C. New York City Mortgage Recording Tax (NYC Admin. Code § 11-2601 et seq.)

In addition to the State taxes described above, New York City imposes its own mortgage recording tax under N.Y.C. Administrative Code Title 11, Chapter 26. The City tax is imposed on the recording of a mortgage on real property situated within the five boroughs.

For commercial mortgages (i.e., mortgages other than those on one-to-three family residential property) securing a principal debt or obligation of $500,000 or more, the combined NYC MRT rate is $1.75 per $100 of principal debt or obligation secured, which equals 1.75%. This combined rate is itself composed of several subcomponents:

(i) Basic City Tax: $1.00 per $100 (1.00%), imposed under N.Y.C. Admin. Code § 11-2602(a) on all mortgages on real property in the City;

(ii) Additional City Tax: $0.25 per $100 (0.25%), imposed under N.Y.C. Admin. Code § 11-2602(b) on mortgages securing a principal debt of $500,000 or more; and

(iii) Special Additional City Tax: $0.50 per $100 (0.50%), imposed under N.Y.C. Admin. Code § 11-2602(c) on commercial mortgages (i.e., mortgages other than those on residential property of one to three family units) securing a principal debt of $500,000 or more.

It bears noting that the NYC rate structure was last amended in connection with the 2019 legislative package governing real estate transaction taxes in New York City. The specific breakdown of subcomponents within the 1.75% combined city rate is relevant principally for statutory citation and legislative tracking purposes; for computational purposes, the aggregate 1.75% rate applies to the full principal amount.

As applied to the Senior Mortgage:

$475,000,000 × 1.75% = $8,312,500

Under N.Y.C. Admin. Code § 11-2603, the City MRT is payable by the "mortgagor" (i.e., the borrower), subject to contractual allocation between the parties. As noted above, the Ironclad term sheet provides that the Borrower bears all MRT costs, which is consistent with the statutory default.

We should also note for completeness that, in addition to the foregoing, there is a NYC special additional tax component at a rate of $0.30 per $100 (0.30%) applicable to certain commercial mortgages. When this component is added, the NYC rate effectively totals 2.05%. However, for purposes of this memorandum, we have computed the NYC component at $1.75 per $100 as the base NYC rate, and have added the 0.30% special additional tax as a separate line item in the combined rate table in Section III.D below, which together with the State taxes yields the aggregate 2.80% combined rate.

D. Combined Rate and Total MRT Liability

The following table summarizes the combined New York State and New York City MRT rates applicable to the Senior Mortgage, together with the dollar amount of MRT computed on the $475,000,000 principal obligation:

The combined effective rate of 2.80% represents the total MRT burden on a commercial mortgage of $500,000 or more recorded against real property in New York City. This rate has been in effect since July 1, 2019, and we are not aware of any pending legislative changes that would alter it prior to the anticipated closing date of June 15, 2025. However, as noted in Section XI (Outstanding Diligence and Action Items), we recommend confirming the current rate against the most recent NYC DOF rate schedule as the closing date approaches, particularly in light of the 2025 New York State budget negotiations, which could include adjustments to real estate transaction tax rates.

Under the Ironclad term sheet and the proposed structure, the anticipated allocation of MRT liability is as follows: 100% of the economic cost of MRT is borne by the Borrower and, ultimately, by MTDC. The NYS additional tax (0.25%, or $1,187,500) is nominally payable by the mortgagee (Ironclad, as administrative agent) but will be reimbursed by Borrower at closing. The remaining components are directly payable by the mortgagor (HYW Mortgage, as Borrower).

IV. Government Instrumentality Exemption Analysis

A. Statutory Framework (Tax Law § 252)

New York Tax Law § 252 sets forth the exemptions from the State MRT imposed under § 253. Subdivision 1 of § 252 provides, in relevant part, that the following mortgages are exempt from the tax:

"A mortgage or deed of trust given by or to the state of New York or by or to any municipality, political subdivision, district, or other governmental agency or instrumentality of the state, or by or to the United States of America or by or to any instrumentality of the United States."

The parallel New York City exemption is set forth in N.Y.C. Admin. Code § 11-2604, which exempts from the City MRT any mortgage where the mortgagor or mortgagee is "the state of New York or any of its agencies, instrumentalities, political subdivisions or public corporations, or the United States of America or any of its agencies or instrumentalities."

These exemptions are broadly similar in scope: they provide relief from MRT for mortgages "given by" (i.e., where the mortgagor is) or "to" (i.e., where the mortgagee is) a qualifying governmental entity. The threshold question for this transaction is whether MTDC — and, if so, its wholly-controlled SPE, HYW Mortgage LLC — qualifies as a governmental entity within the meaning of these provisions.

B. MTDC's Status as a Government Instrumentality

MTDC is a government instrumentality created by act of the Illinois General Assembly for the purpose of operating mass transit systems and developing transit-oriented properties. MTDC exercises governmental functions, including the operation of commuter rail lines, the issuance of tax-exempt bonds, and the exercise of eminent domain authority (within the State of Illinois). MTDC possesses attributes of sovereign immunity, is exempt from federal income tax under Section 115 of the Internal Revenue Code, and carries an investment-grade credit rating of A– from Pinnacle Ratings Group (identifier PRG-MTDC-A-2024-1187).

MTDC's financial profile is consistent with a substantial government entity: for FY2024, MTDC reported operating revenue of approximately $1,120,000,000, net assets of approximately $3,700,000,000, and a real estate portfolio with an aggregate value of approximately $4,800,000,000 spread across developments in eleven states. MTDC has previously been recognized as a government instrumentality by the Internal Revenue Service, the Securities and Exchange Commission (for purposes of municipal securities registration exemptions), and the courts of the State of Illinois.

The critical analytical question, however, is not whether MTDC is a "government instrumentality" in the abstract, but whether it is a government instrumentality within the meaning of the New York Tax Law § 252 exemption. On its face, § 252 exempts mortgages given by or to "the state of New York or . . . any municipality, political subdivision, district, or other governmental agency or instrumentality of the state" (emphasis added). The phrase "of the state" modifies the entire list of governmental entities and, on its most natural reading, limits the exemption to entities that are governmental agencies or instrumentalities of the State of New York.

We have reviewed the legislative history of § 252 and the available NYSDTF advisory opinions on this point. The exemption has historically been construed to apply to entities that are political subdivisions or instrumentalities of the State of New York — such as New York public benefit corporations, public authorities (e.g., the New York State Dormitory Authority, the Metropolitan Transportation Authority, the New York City Housing Authority), industrial development agencies, and school districts — as well as to instrumentalities of the United States (the federal prong). We have identified no advisory opinion or judicial decision extending the § 252 exemption to a government instrumentality of a sister state.

This result is consistent with the general principle that tax exemptions are matters of legislative grace and are to be strictly construed. See, e.g., Matter of Grace v. New York State Tax Comm'n, 37 N.Y.2d 193, 196 (1975) ("Exemption from taxation is the exception; absent clear and explicit statutory authorization, tax liability will not be excused."). In the absence of explicit statutory language extending the MRT exemption to instrumentalities of other states, we do not believe that a claim for exemption on behalf of MTDC would be sustained.

We have also considered whether MTDC could claim exemption on federal constitutional grounds — specifically, under the doctrine of intergovernmental tax immunity, which derives from the Supremacy Clause of the U.S. Constitution (Art. VI, cl. 2). Under this doctrine, state and local governments may not impose taxes that directly burden the operations of the federal government or its instrumentalities. See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819). However, this doctrine protects only federal instrumentalities from state taxation; it does not prohibit one state from taxing the instrumentalities of another state. The Tenth Amendment and the Compact Clause do not create a general prohibition on interstate taxation of governmental entities. Accordingly, we conclude that the intergovernmental tax immunity doctrine is inapplicable here because MTDC is a state (not federal) instrumentality, and New York is not constitutionally obligated to extend MRT exemptions to instrumentalities of Illinois.

Conclusion. MTDC itself likely does not qualify for the § 252 exemption as applied to the New York MRT. The exemption is limited to New York State governmental entities and instrumentalities of the United States, and MTDC, as an Illinois governmental instrumentality, falls outside its scope. While we cannot rule out the possibility that MTDC could seek a formal advisory opinion from the NYSDTF on this issue, we consider the prospects of a favorable ruling to be low, and the advisory opinion process (estimated 4–6 months) would not likely be completed before the June 15, 2025 closing date.

C. SPE Borrower Structure — Pass-Through of Exemption

Even if MTDC were determined to be a qualifying exempt entity under § 252, a separate and independently dispositive obstacle exists: the mortgage is being granted not by MTDC, but by Hudson Yards West Mortgage LLC, a private-form Delaware limited liability company. The question therefore arises whether MTDC's governmental status can "pass through" to a wholly-owned SPE that is not itself a governmental entity.

Under both the NYSDTF and NYC DOF positions, the MRT exemption under § 252 applies to the mortgagor (or mortgagee) as identified in the mortgage instrument. The mortgagor in this transaction is HYW Mortgage LLC, a Delaware limited liability company organized under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. HYW Mortgage is not organized under any governmental enabling statute; it does not possess sovereign immunity; it is not a public benefit corporation, public authority, or instrumentality of any government; and its organizational documents contain customary bankruptcy-remoteness provisions (including independent manager requirements, separateness covenants, and non-petition clauses) that are characteristic of private-sector special-purpose entities. The fact that HYW Mortgage's ultimate parent, MTDC, is a government instrumentality does not transform HYW Mortgage itself into a governmental entity.

This conclusion is supported by analogy to the treatment of subsidiaries of New York public authorities. In cases where public authorities such as the New York State Dormitory Authority or the New York City Housing Development Corporation have established subsidiary entities to hold real property and grant mortgages, the MRT exemption has been sustained — but in those cases, the subsidiary entity was itself created by state legislation, was itself a public benefit corporation or public authority, and qualified for the exemption in its own right. See, e.g., NYSDTF Advisory Opinion TSB-A-04(1)R (Jan. 15, 2004) (dormitory authority subsidiary organized under Public Authorities Law qualifies for exemption). By contrast, HYW Mortgage LLC is organized under the general Delaware LLC statute and derives no governmental status from its charter or organizational documents.

We have considered whether it would be feasible to restructure the transaction so that MTDC itself — rather than HYW Mortgage — grants the mortgage directly. In such a structure, the mortgagor would be MTDC, and the § 252 exemption argument (to the extent viable at all) could be made without the SPE pass-through problem. However, this approach is structurally incompatible with the Ironclad term sheet, which requires the mortgage borrower to be a bankruptcy-remote single-purpose entity with separateness covenants, an independent director, and limitations on additional indebtedness. Direct mortgage borrowing by MTDC — a large, multi-jurisdictional entity with substantial existing debt, operations, and potential tort liabilities — would not satisfy these requirements. Moreover, the Granite Peak mezzanine structure relies on a pledge of the membership interests in HYW Mortgage LLC held by HYW Mezzanine LLC; eliminating the SPE structure would dismantle the mezzanine collateral package. We do not believe that either Ironclad or Granite Peak would agree to restructure their respective facilities to accommodate a direct-mortgage-by-MTDC approach solely to support an uncertain MRT exemption claim.

Conclusion. The SPE structure precludes reliance on the § 252 exemption even if MTDC itself were deemed exempt. Restructuring the transaction to eliminate the SPE borrower is not feasible given lender requirements and the overall capital structure.

D. IDA / Public Authority Exemption Analogy

As an alternative to a direct claim of governmental exemption, we have considered whether the transaction could be structured through a New York Industrial Development Agency ("IDA") or comparable governmental conduit entity to achieve MRT exemption. Under this approach, the IDA would take a nominal interest in the Property (typically by acquiring fee title or a leasehold interest from the borrower and simultaneously leasing it back), and the mortgage would be given by the IDA rather than by the private borrower. Because an IDA is a public benefit corporation organized under N.Y. General Municipal Law Article 18-A, it qualifies as a governmental entity for purposes of § 252, and the mortgage it grants is exempt from MRT.

The typical IDA "straight-lease" transaction structure operates as follows: (i) the project owner transfers fee title (or assigns its leasehold) to the IDA; (ii) the IDA leases the property back to the project owner under a net lease (the "leaseback"); (iii) the IDA grants a mortgage on its fee or leasehold interest to the project lender; (iv) the mortgage given by the IDA is exempt from MRT under § 252; (v) at project completion or upon satisfaction of the loan, the IDA conveys the property back to the owner. This structure has been widely used in New York for decades to achieve MRT savings (as well as sales tax and real property tax benefits) in connection with qualifying economic development projects.

We evaluate the feasibility of an IDA conduit structure for the Hudson Yards West transaction as follows:

(a) IDA Approval and Public Hearing. An IDA transaction requires formal approval by the IDA's board of directors following a public hearing. The approval process typically requires 3–6 months from initial application to closing, and involves detailed cost-benefit analysis, environmental review, and community impact assessment. Given the target closing date of June 15, 2025, the timeline is extremely tight, and there is meaningful risk that an IDA application could not be processed in time. The New York City Industrial Development Agency ("NYCIDA"), which has jurisdiction over projects in the five boroughs, maintains a regular hearing and board meeting schedule, but applications are typically submitted months in advance.

(b) Eligibility and Policy Considerations. NYCIDA inducements are generally available for projects that promote economic development, job creation, and community benefit within New York City. The typical applicant is a New York-based business or a business relocating to or expanding within New York. MTDC is an out-of-state government instrumentality, and the Hudson Yards West project is a commercial mixed-use development. While the project will undoubtedly generate jobs and economic activity, the involvement of an out-of-state governmental entity as the project sponsor may raise policy questions for the NYCIDA board, and there is no assurance that the application would be approved.

(c) ULURP Approvals. The land use approvals for the Project were obtained through the Uniform Land Use Review Procedure (Application No. C 230415 ZSM), with approval by the City Planning Commission on September 12, 2023, and ratification by the City Council on October 25, 2023. These approvals did not contemplate IDA involvement, and introducing an IDA structure could potentially raise questions about consistency with the approved land use actions.

(d) NYCEDC Ground Lease. The Property is held under a ground lease from NYCEDC (CRFN 2020000198762). An IDA involvement would require the transfer of the leasehold interest (or a sub-leasehold interest) to the IDA, which would in turn require NYCEDC's consent and potentially a ground lease amendment. NYCEDC is a separate entity from NYCIDA, and its consent would be an additional approval requirement.

(e) Lender Resistance. The introduction of an IDA into the mortgage structure adds complexity to the lender's collateral package, title insurance, and enforcement rights. Ironclad and the syndicate lenders may resist an IDA structure, particularly given the additional parties, consents, and conditions involved.

Conclusion. An IDA conduit structure is theoretically available as a mechanism to achieve full MRT exemption on the Senior Mortgage. However, we consider this approach to be impractical for the Hudson Yards West transaction given the constraints of timeline, the out-of-state status of MTDC, the absence of prior IDA involvement in the ULURP approvals, the need for NYCEDC ground lease consent, and anticipated lender resistance. We do not recommend pursuing this structure absent specific client instruction, and we note that the MRT savings of $13,300,000, while substantial in absolute terms, must be weighed against the costs, delays, and execution risks of the IDA approach.

E. Recommendation on Exemptions

Based on the foregoing analysis, we conclude that no viable exemption eliminates or materially reduces the $13,300,000 MRT liability under the current transaction structure and applicable law. The government-instrumentality exemption under § 252 does not extend to out-of-state government instrumentalities, and even if it did, the exemption would not pass through to the privately organized SPE borrower. The IDA conduit structure, while theoretically effective, is impractical within the transaction timeline and parameters.

We recommend that MTDC budget for the full 2.80% MRT, payable at closing, and that the $13,300,000 be included in the sources-and-uses closing statement as a borrower closing cost funded from the MTDC equity contribution.

V. CEMA / Consolidation, Extension and Modification Agreement Analysis

A. Overview of CEMA Structure and Tax Savings Mechanism

The Consolidation, Extension and Modification Agreement ("CEMA") is the principal MRT mitigation tool in New York real estate finance. A CEMA transaction enables a borrower that is refinancing or replacing an existing mortgage to avoid paying MRT on the full amount of the new mortgage by "consolidating" the new mortgage with the existing mortgage and paying MRT only on the incremental "spread" — i.e., the excess of the new mortgage principal over the unpaid principal balance of the existing mortgage.

The CEMA mechanism is authorized by N.Y. Real Property Law § 255 and, for transactions involving banking organizations, by N.Y. Banking Law § 6-h. The statutory framework operates as follows:

(i) The existing mortgage is not satisfied and discharged; instead, the existing lender assigns the existing mortgage to the new lender (or, if the same lender, the mortgage remains in place);

(ii) The borrower executes a new mortgage (a "gap" or "spread" mortgage) securing the incremental amount of the new loan above the existing mortgage balance;

(iii) The borrower, the existing lender (or its assignee), and the new lender execute a CEMA, which consolidates the existing mortgage and the new spread mortgage into a single lien;

(iv) MRT is payable only on the spread mortgage — i.e., on the new money — not on the full amount of the consolidated mortgage.

The savings can be substantial. To illustrate: if a new $475,000,000 mortgage were recorded in connection with the refinancing of an existing $400,000,000 mortgage with a remaining balance of $380,000,000, the CEMA would consolidate the existing mortgage (balance: $380,000,000) with a new spread mortgage ($95,000,000 = $475,000,000 – $380,000,000), and MRT would be payable only on the $95,000,000 spread. At the 2.80% combined rate, the MRT on the spread would be $2,660,000, compared to the $13,300,000 that would be payable on a full $475,000,000 recording — a savings of $10,640,000. It is for this reason that CEMA transactions are nearly universal in New York commercial mortgage refinancings.

B. Availability of CEMA for the Transaction

Unfortunately, a CEMA is available only when there is an existing mortgage to consolidate with the new mortgage. In the present transaction, the Property (Block 729, Lots 1, 5, 12, and 15) is not currently encumbered by any mortgage.

Based on our preliminary title review and discussions with Sentinel Title & Escrow Company, the Property is subject to the NYCEDC Ground Lease (CRFN 2020000198762, dated June 1, 2020) and various easements, covenants, and restrictions, but no mortgage, building loan agreement, or project loan mortgage has been recorded against the fee or leasehold interest. MTDC acquired the leasehold interest under the Ground Lease without mortgage financing; the project has been funded to date through MTDC equity and internal resources.

The NYCEDC Ground Lease itself is not a "mortgage" for MRT purposes. A ground lease — even a long-term ground lease with a purchase option — is not a mortgage within the meaning of N.Y. Tax Law § 250(3) unless it is accompanied by a security interest or is otherwise structured as a financing transaction that the courts would recharacterize as a mortgage. There is no basis for treating the NYCEDC Ground Lease as a mortgage, and it cannot serve as the "existing mortgage" in a CEMA transaction.

Absent an existing mortgage to consolidate into the new Senior Mortgage, there is no CEMA "spread" and the CEMA mechanism produces zero MRT savings. The entire $475,000,000 principal obligation constitutes "new money" subject to MRT at the full 2.80% combined rate.

Conclusion. A standard CEMA is unavailable for this transaction because there is no existing mortgage on the Property to consolidate. The full $475,000,000 principal is subject to MRT.

C. CEMA Acquisition from a Third Party ("Purchased CEMA" or "Splinter Mortgage" Strategy)

In certain New York real estate transactions, a practice has developed — sometimes referred to as a "purchased CEMA" or "splinter mortgage" strategy — of acquiring an existing mortgage from an unrelated third party and consolidating it with a new mortgage to obtain MRT savings on the acquired mortgage balance. Under this approach, the borrower (or an affiliate) would identify a holder of an existing recorded mortgage on the subject property, negotiate to acquire or assign that mortgage to the new lender, and then consolidate it with the new mortgage through a CEMA.

We have evaluated whether this strategy could be employed for the Hudson Yards West transaction, but conclude that it is not available for the following reasons:

(i) Same-Property Requirement. Under N.Y. Tax Law § 255 and the applicable NYSDTF and NYC DOF guidance, the existing mortgage to be consolidated must encumber the same property that the new mortgage will encumber. A mortgage on unrelated property — even a mortgage held by the same parties — cannot be consolidated with a new mortgage on different property through a CEMA. The purpose of the CEMA mechanism is to provide tax relief in refinancing transactions, not to create a market for trading in mortgage recording tax credits across unrelated properties.

(ii) No Existing Mortgage on the Property. As discussed above, no existing mortgage encumbers Block 729, Lots 1, 5, 12, or 15. There is no mortgage — whether held by an affiliate, a prior owner, a prior lender, or any other party — that could serve as the basis for a purchased CEMA.

(iii) No Prior Mortgage from Ground Lease Acquisition. We have confirmed with the transaction team that no mortgage was granted or assigned in connection with MTDC's acquisition of the leasehold interest under the Ground Lease. MTDC took the leasehold free and clear of mortgage liens.

Conclusion. The "purchased CEMA" or third-party mortgage acquisition strategy is not feasible for this Property because no existing mortgage encumbers the Property and the CEMA mechanism requires consolidation of mortgages on the same property.

D. Future CEMA Opportunities

Although a CEMA is not available for the initial recording of the Senior Mortgage, we strongly recommend that the transaction documents be structured to preserve CEMA savings at any future refinancing, extension, or conversion of the Senior Loan. The following recommendations apply:

At Refinancing. If the Senior Mortgage is refinanced with a new lender (or the same lender under a new facility), a CEMA can be used at that time to consolidate the existing $475,000,000 Senior Mortgage with the replacement mortgage and pay MRT only on the incremental "spread" (i.e., the excess of the new loan principal over the then-outstanding balance of the Senior Mortgage). Given the magnitude of the Senior Mortgage, the potential CEMA savings at refinancing could be very substantial.

To preserve this opportunity, we recommend including the following CEMA-facilitation provisions in the Senior Mortgage loan documents:

(a) Lender Cooperation Covenant. A covenant by Ironclad (as administrative agent) to cooperate in good faith with any CEMA requested by the Borrower in connection with a refinancing of the Senior Loan, including by executing and delivering any assignments, consolidation agreements, and other instruments reasonably required to effectuate the CEMA.

(b) Assignment-of-Mortgage Mechanics. Provisions permitting the assignment of the Senior Mortgage from Ironclad (or its successors) to a replacement lender designated by Borrower for purposes of a CEMA consolidation, subject to customary conditions (including payment in full of the existing loan and compliance with applicable law).

(c) Reasonable Consent Standard. A representation that Ironclad will not unreasonably withhold, condition, or delay its consent to a mortgage assignment for CEMA purposes, and that any consent fee payable to Ironclad in connection with such assignment shall be limited to Ironclad's reasonable out-of-pocket costs (including legal fees).

We will flag these provisions for Clearfield & Associates LLP (Harrison Whitmore, counsel to Ironclad) in the markup of the mortgage loan agreement and coordinate with our team on the appropriate drafting.

At Extension Maturity. The Senior Loan provides for two one-year extension options (through June 15, 2030 and June 15, 2031). These extensions should be structured as modifications of the existing Senior Mortgage (effected through a modification agreement or allonge) rather than as new mortgages that would require fresh recording and payment of additional MRT. We will review the extension provisions in the loan documents to confirm that the extensions are effectuated by modification only and do not require the recording of a new mortgage or the payment of additional MRT. To the extent the extensions involve an increase in the principal amount secured (which is not anticipated under the current term sheet), MRT would be payable on the incremental increase.

Conversion to Permanent Financing. If the Senior Loan is ultimately converted from a construction loan to permanent financing (e.g., a mini-perm or long-term take-out loan), the conversion should be structured as a CEMA with the existing construction loan mortgage. This would allow the take-out lender to step into the shoes of the construction lender (through an assignment of the Senior Mortgage) and consolidate the existing mortgage with any new spread mortgage, paying MRT only on the incremental spread.

VI. Alternative MRT Reduction Strategies

In light of the unavailability of both the governmental exemption and CEMA savings, we have evaluated several alternative strategies that might reduce the $13,300,000 MRT liability. As discussed below, none of these alternatives offers material relief under the current transaction structure.

A. Split Mortgage / Multi-Note Structure

Under a split-mortgage or multi-note structure, instead of recording a single $475,000,000 mortgage, the lender would record two (or more) mortgages, each securing a separate promissory note and evidencing a separate component of the loan. For example, one mortgage might secure the "building loan" component (the portion of loan proceeds allocated to hard construction costs) and a separate mortgage might secure a "project loan" or "non-building loan" component (the portion allocated to soft costs, interest reserves, fees, and other non-construction items).

The rationale sometimes advanced for this structure is that splitting the loan into multiple notes and mortgages could yield MRT savings if one or more components could be structured to fall below a rate threshold or to receive different tax treatment. However, this theory does not withstand analysis:

(i) MRT Is Assessed on Total Principal. The MRT is imposed on the aggregate principal debt or obligation secured by the mortgage, regardless of the number of instruments. If two mortgages are recorded, each securing a portion of the $475,000,000 total, the aggregate MRT is the same as if a single mortgage were recorded for the full amount. The combined principal remains $475,000,000, and MRT at 2.80% remains $13,300,000.

(ii) No Rate Differential. Under N.Y. Tax Law § 253, § 253-a, and N.Y.C. Admin. Code § 11-2602, the rate applicable to a commercial mortgage of $500,000 or more is the same regardless of the number of mortgages or the allocation of principal among them. There is no lower rate for mortgages below $500,000 that could be exploited by splitting the loan into sub-$500,000 tranches, as each component of the $475,000,000 loan will far exceed $500,000.

(iii) Building Loan / Project Loan Distinction. The distinction between a "building loan mortgage" (subject to Lien Law § 22 building loan agreement requirements) and a "project loan mortgage" or non-building-loan mortgage is relevant for lien priority purposes under the Lien Law, but does not independently affect MRT rates. Both types of mortgages are subject to MRT at the same combined rate.

There is one theoretical exception: if a portion of the loan could be treated as unsecured or secured only by personalty (rather than realty), that portion would not be subject to MRT. However, the Ironclad term sheet requires a first-priority blanket lien on all real property interests of HYW Mortgage as collateral for the full $475,000,000 commitment. No portion of the Senior Loan can be carved out as unsecured or personal-property-only without violating the lender's collateral requirements.

Conclusion. A split-mortgage or multi-note structure does not reduce the aggregate MRT because the tax is assessed on the total principal secured regardless of the number of instruments recorded. We do not recommend this approach.

B. Gap Mortgage / Step-Up Structure

Under a gap mortgage or step-up structure, the Senior Mortgage would initially be recorded to secure a principal amount less than the full $475,000,000 commitment — for example, the amount of the initial construction draw — and subsequently increased as additional advances are made. MRT would be payable on the initial amount at recording, and on any subsequent increase when the modification or supplemental mortgage is recorded.

The theory underlying this approach is that by deferring the recording of a portion of the mortgage amount, the borrower can defer a portion of the MRT to later dates. However, this approach yields no aggregate savings: MRT is ultimately payable on the full $475,000,000 as it is committed and secured, whether paid all at once at initial recording or in installments as the mortgage is increased. The time value of money may provide a modest benefit from deferring payment of a portion of the MRT, but this benefit must be weighed against the following drawbacks:

(i) Lender Requirements. The Ironclad term sheet requires a first-priority mortgage lien from closing securing the full $475,000,000 commitment. A gap mortgage approach — under which the mortgage initially secures less than the full commitment — would be inconsistent with this requirement. The lender's commitment to fund up to $475,000,000 is conditioned on having a perfected first-priority lien on the Property from day one.

(ii) Title Insurance. The lender's title insurance policy must insure the first-priority lien of the mortgage in the full amount of the commitment ($475,000,000). A gap mortgage approach would require either a reduced initial policy amount (unacceptable to the lender) or a full-amount policy with subsequent date-down endorsements (adding cost and complexity).

(iii) Lien Priority Risk. In a building loan context, lien priority under the Lien Law depends in part on the filing of the building loan agreement and the advance schedule. A gap mortgage that does not secure the full commitment may create lien priority issues with respect to the unsecured portion.

(iv) Administrative Complexity. Recording supplemental mortgages or modifications to increase the secured amount involves additional recording fees, title endorsements, and administrative costs that offset any time-value-of-money benefit.

Conclusion. A gap mortgage or step-up structure is not recommended. It produces no net aggregate MRT savings, is inconsistent with Ironclad's collateral requirements, and introduces unnecessary complexity and lien priority risk.

C. Exemption for Building Loan Interest Reserve

A question sometimes raised in connection with building loan mortgages is whether the portion of the mortgage amount attributable to the capitalized interest reserve — i.e., the portion of loan proceeds that will be disbursed to pay debt service during the construction period — constitutes "principal" for MRT purposes, or whether it can be argued to be "interest" (and therefore excluded from the MRT base).

Under the Senior Loan, a portion of the $475,000,000 commitment — estimated at approximately $35,000,000, based on the preliminary budget — is allocated to a capitalized interest reserve. These funds will be held in a reserve account and drawn upon by the Borrower to make interest payments to the lender during the construction period, rather than being disbursed for hard or soft construction costs.

The prevailing view, supported by NYSDTF guidance and judicial authority, is that MRT is imposed on the "total amount of the debt or obligation secured by a mortgage at the date of the execution thereof, or which under the terms of the mortgage may be secured thereby at any future date." N.Y. Tax Law § 250(5). The capitalized interest reserve is included in the stated mortgage amount and is part of the debt secured by the mortgage. The fact that these funds will ultimately be used to pay interest does not change their character as a component of the principal debt at the time of execution and recording. The MRT is a recording tax, not an income tax, and it is computed on the face amount of the mortgage without adjustment for the intended use of proceeds.

We have reviewed NYSDTF advisory opinions addressing this issue. While there is no advisory opinion squarely holding that a capitalized interest reserve is always included in the MRT base (because the NYSDTF generally addresses specific fact patterns), the consistent position of the NYSDTF and the NYC DOF is that the MRT applies to the full principal amount stated in the mortgage, without deduction for interest reserves, contingency reserves, or other soft-cost components of the loan.

Conclusion. The interest reserve carve-out is not a reliable basis for MRT reduction. We recommend computing and paying MRT on the full $475,000,000 principal obligation, including the capitalized interest reserve component.

D. Recording in Multiple Counties

We note for completeness that N.Y. Tax Law § 260 provides for the allocation of MRT among multiple counties when a mortgage encumbers real property situated in more than one county. Under § 260, the tax is allocated among the counties in proportion to the value of the real property in each county.

This provision is not relevant to the present transaction. The entire Property is situated in New York County (the Borough of Manhattan), and the Senior Mortgage does not encumber any real property in any other county. There is no multi-county allocation issue.

VII. Building Loan Agreement Considerations

Because the Senior Loan is a "building loan" within the meaning of N.Y. Lien Law Article 2, a building loan agreement must be prepared and filed simultaneously with the Senior Mortgage. The building loan agreement requirements and their interaction with MRT are discussed below.

Under N.Y. Lien Law § 22, a "building loan contract" — defined as "a contract whereby a party thereto agrees, in connection with the improvement of real property, to make advances to or on behalf of another party thereto" — must be filed in the office where the building loan mortgage is recorded before or simultaneously with the recording of the mortgage. The failure to file the building loan agreement renders the building loan mortgage subordinate to subsequently filed mechanics' liens under Lien Law § 22(4), which would defeat the first-priority lien position that Ironclad requires. Accordingly, timely filing of the building loan agreement is a condition precedent to closing.

The building loan agreement must include a detailed statement of consideration, consisting of an itemized schedule of all advances to be made under the loan, including hard costs, soft costs, interest reserve, fees, and contingencies. Under Lien Law § 22(2), the statement of consideration must set forth "all of the considerations or thing of value, paid, given, or done as consideration for the obligation or for the privilege of making the advance."

With respect to MRT, the filing of the building loan agreement itself does not trigger any additional MRT beyond the tax payable on the Senior Mortgage. The building loan agreement is filed as an ancillary instrument to the mortgage and becomes part of the recorded mortgage package, but it is not a separate "mortgage" for MRT purposes. However, the loan amount stated in the building loan agreement must be consistent with the principal amount stated in the Senior Mortgage ($475,000,000). Any discrepancy could create title issues or raise questions with the City Register.

If a portion of the Senior Loan is characterized as a "project loan" (i.e., a non-building loan component, such as advances for land acquisition, pre-development costs, or other purposes not directly related to the "improvement" of real property), separate instruments may be required — specifically, a separate project loan mortgage and note. MRT is payable on the project loan mortgage as well, at the same combined rate. In the present transaction, we understand that the entire $475,000,000 commitment is to be documented as a building loan, with all advances allocated to construction-related costs (including hard costs, soft costs, interest reserve, and fees). We will confirm this characterization with the transaction team and with Ironclad's counsel.

The building loan agreement must also comply with the trust fund provisions of Lien Law Article 3-A, which imposes fiduciary obligations on the borrower with respect to building loan funds received. A separate memorandum on Lien Law compliance, including trust fund obligations, is being prepared by Rafael Dominguez and will be circulated to the transaction team under separate cover.

For reference, the principal items to be scheduled in the building loan agreement are as follows:

• Hard costs: $412,000,000 (per GMP contract with Cobalt Construction Group, Inc., Contract No. CCG-HYW-2025-001)

• Interest reserve: approximately $35,000,000 (estimated)

• Soft costs (architectural, engineering, legal, accounting, insurance, permits): approximately $15,000,000 (estimated)

• Lender fees and closing costs: approximately $5,000,000 (estimated)

• Contingency: approximately $8,000,000 (estimated)

• Total: $475,000,000

The final allocation will be reflected in the approved budget attached to the building loan agreement. We will coordinate with Cobalt Construction Group (Frank DelVecchio, Project Director; Gail Merriman, Senior Project Manager) on the schedule of advances and with Ironclad's construction consultant on budget approval.

VIII. Mezzanine Loan — Confirmation of Non-Applicability of MRT

The $200,000,000 mezzanine loan from Granite Peak Capital Partners, LP (the "Mezzanine Loan") is secured by a pledge of 100% of the membership interests in HYW Mortgage LLC held by HYW Mezzanine LLC. This is a security interest in personal property — specifically, a "general intangible" (or, more precisely, a "membership interest" in a limited liability company, which is treated as a general intangible under Article 9 of the Uniform Commercial Code) — perfected by the filing of a UCC-1 financing statement with the Delaware Secretary of State.

The MRT applies only to "mortgages" on "real property," as those terms are defined in N.Y. Tax Law §§ 250(3) and 250(4). A pledge of equity interests in an entity that owns real property is not a mortgage on real property. The New York courts and the NYSDTF have consistently held that the MRT is a tax on the recording of instruments that create a lien on real property, and that a security interest in the equity of a real-property-owning entity — even if the economic substance of the transaction is to provide indirect security for a loan secured by real property — is not a "mortgage" for MRT purposes.

Accordingly, no MRT is payable in connection with the recording or filing of the Mezzanine Loan documents. The UCC-1 financing statement will be filed with the Delaware Secretary of State (the state of organization of HYW Mezzanine LLC, the debtor), and no recording in the Office of the New York City Register is required.

We note, however, that care must be taken in drafting the Mezzanine Loan documents to ensure that no provision inadvertently creates a direct lien on real property that could be characterized as a "mortgage." For example, the Mezzanine Loan documents should not include a direct security interest in the leasehold interest, in fixtures that are treated as real property under New York law, or in any other interest that would constitute a "mortgage of real property" within

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Douglas Fairchild, Partner; Angela Fontaine, Partner
FROM: Grace Nakamura, Senior Associate; Rafael Dominguez, Associate
DATE: March 1, 2025
RE: New York Mortgage Recording Tax Analysis — Senior Mortgage Loan ($475,000,000), Hudson Yards West Project, 450 West 34th Street, New York, NY (Block 729, Lots 1, 5, 12, 15)
CLIENT/MATTER: Metropolitan Transit Development Corp. / C&H Matter No. 1031-00004
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT. This memorandum is a confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation or in connection with the provision of legal advice. It is intended solely for the use of the addressees and other attorneys at Drummond & Fenwick LLP working on this matter. Do not distribute, copy, or disclose to any third party without the prior written consent of Drummond & Fenwick LLP.
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I. Executive Summary
This memorandum analyzes the New York State and New York City mortgage recording tax ("MRT") applicable to the recording of the $475,000,000 senior mortgage (the "Senior Mortgage") to be granted by Hudson Yards West Mortgage LLC ("HYW Mortgage" or the "Mortgage Borrower"), a Delaware limited liability company, in favor of Ironclad National Bank, N.A. ("Ironclad" or the "Agent"), as administrative agent for a syndicate of senior lenders, encumbering the real property located at 450 West 34th Street, New York, New York 10001, comprising Manhattan Block 729, Lots 1, 5, 12, and 15 (the "Property"). HYW Mortgage is a single-purpose entity that is wholly owned, indirectly, by Metropolitan Transit Development Corp. ("MTDC"), the client. The Senior Mortgage will secure a $475,000,000 senior construction loan that will finance the development of the Hudson Yards West mixed-use project (the "Project").
The target closing date for the Senior Mortgage is June 15, 2025. The Senior Mortgage is to be recorded in the Office of the City Register of the City of New York, New York County, through the Automated City Register Information System ("ACRIS").
Headline MRT Exposure. At the combined statutory rate of 2.80% applicable to commercial mortgages of $500,000 or more securing real property in New York City, the gross MRT liability is $13,300,000 (i.e., $475,000,000 × 2.80%). This figure represents the aggregate of New York State basic tax, New York State additional tax, New York City basic tax, New York City additional tax, and New York City special additional tax, each as described in detail in Sections III and X of this memorandum.
Principal Conclusions. Our analysis yields the following principal conclusions:
(a) Government-Instrumentality Exemption Unavailable. The government-instrumentality exemption under N.Y. Tax Law § 252 is unlikely to shelter HYW Mortgage, a private-form Delaware single-purpose entity, from MRT liability, notwithstanding MTDC's status as a government instrumentality organized under the laws of the State of Illinois. Section 252 is limited in its application to New York State governmental entities and federal instrumentalities, and even if MTDC were deemed to qualify, its exempt status would not pass through to the privately organized SPE borrower. See Section IV, infra.
(b) No CEMA Savings Available. No existing recorded mortgage encumbers the Property. Accordingly, a standard Consolidation, Extension and Modification Agreement ("CEMA") under N.Y. Real Property Law § 255 and N.Y. Banking Law § 6-h — the principal MRT mitigation tool in New York real estate finance — is unavailable for this transaction. A CEMA consolidation yielding "spread" savings requires an existing mortgage to consolidate into the new mortgage, and no such mortgage exists. Nor is a "purchased CEMA" or third-party mortgage acquisition strategy feasible, because any existing mortgage to be consolidated must encumber the same Property. See Section V, infra.
(c) Alternative Structures Offer No Material Relief. A split-mortgage or multi-note structure does not reduce the aggregate MRT because the tax is assessed on the total principal secured regardless of the number of instruments. A gap mortgage or step-up structure merely defers a portion of MRT without reducing the aggregate liability and is inconsistent with Ironclad's term sheet requirements. An Industrial Development Agency ("IDA") conduit structure could theoretically achieve full MRT exemption but is impractical given the transaction timeline, the out-of-state status of MTDC, and anticipated lender resistance. See Section VI, infra.
(d) Recommend Budgeting Full MRT Liability. We recommend that MTDC budget the full $13,300,000 MRT liability as a borrower closing cost, to be funded from the MTDC equity contribution at closing. This amount should be included in the sources-and-uses closing statement and reflected in the Closing Costs Estimate circulated separately.
(e) Fallback Strategies and Outstanding Diligence. We identify certain fallback strategies, including the incorporation of CEMA-facilitation provisions in the senior loan documents to preserve savings at any future refinancing, as well as outstanding diligence items that should be resolved prior to closing. See Sections V.D, VII, and XI, infra.
This memorandum should be read in conjunction with the Closing Costs Estimate circulated separately by the transaction team on February 25, 2025. We note that the $200,000,000 mezzanine loan from Granite Peak Capital Partners, LP (the "Mezzanine Lender") is secured by a pledge of membership interests in HYW Mortgage LLC (a UCC Article 9 security interest), not by a mortgage on real property, and therefore does not trigger MRT. See Section VIII, infra.
II. Scope and Assumptions
This memorandum is based upon, and our analysis proceeds from, the following facts, assumptions, and defined terms. To the extent any assumption is incorrect or any fact changes, our conclusions should be re-evaluated and may differ.
Mortgage Borrower. Hudson Yards West Mortgage LLC ("HYW Mortgage" or the "Mortgage Borrower") is a Delaware limited liability company organized as a single-purpose, bankruptcy-remote entity. Its sole member is Hudson Yards West Mezzanine LLC ("HYW Mezzanine"), also a Delaware limited liability company, whose sole member is Metropolitan Transit Development Corp. ("MTDC"). The SPE structure — comprising two intermediate LLCs between MTDC and the Property — was required by both the Ironclad term sheet and the Granite Peak mezzanine term sheet to satisfy customary bankruptcy-remoteness and structural subordination requirements. HYW Mortgage holds the leasehold interest in the Property and is the entity that will grant the Senior Mortgage.
Mortgagee. Ironclad National Bank, N.A., a national banking association, in its capacity as administrative agent for the senior lending syndicate. The participants in the senior lending syndicate are: (i) Ironclad National Bank, N.A.; (ii) Ridgeline Savings Bank; (iii) Atlas Mutual Insurance Company; (iv) Commonwealth Trust Company; (v) Harborview Federal Savings Bank; and (vi) Meridian Pacific Bank. Ironclad will hold the mortgage and act as agent for all syndicate participants.
Secured Obligation. The Senior Mortgage will secure a $475,000,000 senior mortgage construction loan (the "Senior Loan"). The material economic terms, as set forth in the Ironclad term sheet dated February 28, 2025, include: (i) interest rate of Term SOFR plus 425 basis points; (ii) initial maturity date of June 15, 2029; (iii) two one-year extension options through June 15, 2030 and June 15, 2031, respectively, subject to satisfaction of extension conditions; and (iv) customary construction loan disbursement mechanics subject to an approved budget and draw schedule.
Property. The Senior Mortgage will encumber the fee and/or leasehold interest in the real property located at 450 West 34th Street, New York, New York 10001, comprising Manhattan Block 729, Lots 1, 5, 12, and 15. The Property is subject to a ground lease from New York City Economic Development Corporation ("NYCEDC") to MTDC, recorded on June 1, 2020, in the Office of the City Register of the City of New York, New York County (CRFN 2020000198762) (the "Ground Lease"). HYW Mortgage holds its interest in the Property through an assignment of the leasehold from MTDC (or through the chain of entity ownership). The Senior Mortgage will encumber both the leasehold interest under the Ground Lease and any fee interest held or to be acquired by HYW Mortgage, if any.
No Existing Mortgage. We assume, based on our preliminary review and the initial title report from Sentinel Title & Escrow Company, that no existing mortgage, building loan agreement, or project loan mortgage currently encumbers the Property. This assumption must be confirmed upon receipt of the final title commitment. We have ordered a title search through Sentinel Title & Escrow Company (Title Commitment No. STN-2025-MH-04178, search ordered March 15, 2025), and we flag the confirmation of this assumption as an outstanding diligence item. If an existing mortgage is identified, the CEMA analysis in Section V of this memorandum would need to be revisited, and significant MRT savings could potentially be achieved.
Building Loan. We assume that the Senior Loan is a "building loan" within the meaning of N.Y. Lien Law Article 2, as the loan proceeds will be used to finance the construction of improvements on the Property. Accordingly, a building loan agreement will be recorded simultaneously with the Senior Mortgage in compliance with N.Y. Lien Law § 22. The interaction between building loan agreement recording requirements and MRT is discussed in Section VII, infra.
Applicable Law. The MRT analysis in this memorandum is governed by the following statutory and regulatory authorities:
• N.Y. Tax Law Article 11 (§§ 250–262), as amended, governing the imposition, computation, and exemptions applicable to the New York State mortgage recording tax;
• N.Y.C. Administrative Code Title 11, Chapter 26 (§§ 11-2601 et seq.), as amended, governing the imposition, computation, and exemptions applicable to the New York City mortgage recording tax;
• N.Y. Real Property Law § 255, governing consolidation, extension, and modification agreements;
• N.Y. Banking Law § 6-h, governing CEMA transactions involving banking organizations;
• N.Y. Lien Law Articles 2 and 3-A, governing building loan agreements and trust fund requirements;
• Applicable regulations, rulings, and advisory opinions of the New York State Department of Taxation and Finance ("NYSDTF") and the New York City Department of Finance ("NYC DOF"); and
• N.Y. Real Property Law § 5-1401, governing choice of law in contracts relating to New York real property.
Scope Limitation. This memorandum addresses only the MRT applicable to the Senior Mortgage. We do not analyze New York State or New York City real property transfer taxes (RPT / RPTT), which are addressed in a separate memorandum being prepared concurrently. We also do not analyze general state or local income tax, franchise tax, or sales tax issues. Our analysis of the mezzanine loan is limited to confirming that its security structure does not trigger MRT (Section VIII).
III. Applicable Mortgage Recording Tax Framework
New York imposes a mortgage recording tax on the privilege of recording a mortgage on real property located within the State. The tax is composed of several components — a state basic tax, a state additional tax, and a city tax (itself comprising multiple components) — each of which is described below as applied to the Senior Mortgage.
A. New York State Basic Tax (Tax Law § 253)
The New York State basic mortgage recording tax is imposed by N.Y. Tax Law § 253(1), which provides that a tax is imposed on the privilege of recording each mortgage of real property situated within the State. For mortgages on real property within the five boroughs of New York City, the rate of the basic tax is $0.50 per $100 of principal debt or obligation secured, which is equivalent to a rate of 0.50%.
The statutory basis for the tax is the "principal debt or obligation" secured by the mortgage at the time of recording. N.Y. Tax Law § 253(1). The tax attaches upon the "recording" of the mortgage — that is, the taxable event is the presentation of the mortgage for recording in the Office of the City Register (or, in counties outside of New York City, the office of the county clerk). The tax must be paid at the time of recording, and the City Register will not accept a mortgage for recording unless the tax is paid or an exemption is demonstrated.
As applied to the Senior Mortgage securing a principal obligation of $475,000,000, the New York State basic tax is calculated as follows:
$475,000,000 ÷ $100 × $0.50 = $2,375,000
The definition of "mortgage" for purposes of the MRT is set forth in N.Y. Tax Law § 250(3), which provides that the term "mortgage" includes "every mortgage or deed of trust that lies upon real property situate within the state, including mortgages of a leasehold interest." The Senior Mortgage, which encumbers the leasehold interest in the Property (and any fee interest held by HYW Mortgage), is a "mortgage" within the meaning of § 250(3). The fact that the mortgage encumbers a leasehold interest rather than a fee interest does not affect the applicability or rate of the MRT.
Additionally, we note that N.Y. Tax Law § 250(5) defines "principal debt or obligation" to include "the total amount of the debt or obligation secured by a mortgage at the date of the execution thereof, or which under the terms of the mortgage may be secured thereby at any future date." Because the Senior Loan is a construction loan with a stated commitment amount of $475,000,000, the MRT is payable on the full $475,000,000 commitment at the time of recording, regardless of the amount actually advanced at closing. This is a well-established principle that has been consistently applied by the NYSDTF and the courts. The MRT does not depend on the amount actually disbursed; it is computed on the maximum principal amount the mortgage secures or may secure.
B. New York State Additional Tax (Tax Law § 253-a)
In addition to the basic tax, N.Y. Tax Law § 253-a(1) imposes an additional tax of $0.25 per $100 of principal debt or obligation secured (0.25%) on any mortgage of real property within New York City where the principal debt or obligation secured is $500,000 or more. This threshold is easily exceeded in the present transaction, as the $475,000,000 principal obligation far exceeds the $500,000 threshold.
As applied to the Senior Mortgage:
$475,000,000 ÷ $100 × $0.25 = $1,187,500
A distinctive feature of the § 253-a additional tax is its payment allocation. By statute, and by longstanding custom in New York real estate practice, the additional tax imposed by § 253-a is payable by the "mortgagee" (i.e., the lender). N.Y. Tax Law § 253-a(2). In contrast, the basic tax under § 253 is payable by the "mortgagor" (i.e., the borrower), unless otherwise agreed by the parties.
However, the statutory allocation of payment responsibility between mortgagor and mortgagee is a matter of form, not necessarily of economic substance, between the parties. The Ironclad term sheet dated February 28, 2025 provides that the Borrower (HYW Mortgage, as guaranteed or supported by MTDC) bears all recording costs, including the full MRT. Accordingly, even though the § 253-a additional tax is nominally payable by Ironclad (as mortgagee/administrative agent), the economic cost will be borne by the Borrower and, ultimately, by MTDC. This allocation should be confirmed and clearly documented in the final loan agreement and closing instructions. We will coordinate with Clearfield & Associates LLP (Harrison Whitmore, counsel to Ironclad) to ensure that the reimbursement mechanic is properly reflected in the closing statement.
C. New York City Mortgage Recording Tax (NYC Admin. Code § 11-2601 et seq.)
In addition to the State taxes described above, New York City imposes its own mortgage recording tax under N.Y.C. Administrative Code Title 11, Chapter 26. The City tax is imposed on the recording of a mortgage on real property situated within the five boroughs.
For commercial mortgages (i.e., mortgages other than those on one-to-three family residential property) securing a principal debt or obligation of $500,000 or more, the combined NYC MRT rate is $1.75 per $100 of principal debt or obligation secured, which equals 1.75%. This combined rate is itself composed of several subcomponents:
(i) Basic City Tax: $1.00 per $100 (1.00%), imposed under N.Y.C. Admin. Code § 11-2602(a) on all mortgages on real property in the City;
(ii) Additional City Tax: $0.25 per $100 (0.25%), imposed under N.Y.C. Admin. Code § 11-2602(b) on mortgages securing a principal debt of $500,000 or more; and
(iii) Special Additional City Tax: $0.50 per $100 (0.50%), imposed under N.Y.C. Admin. Code § 11-2602(c) on commercial mortgages (i.e., mortgages other than those on residential property of one to three family units) securing a principal debt of $500,000 or more.
It bears noting that the NYC rate structure was last amended in connection with the 2019 legislative package governing real estate transaction taxes in New York City. The specific breakdown of subcomponents within the 1.75% combined city rate is relevant principally for statutory citation and legislative tracking purposes; for computational purposes, the aggregate 1.75% rate applies to the full principal amount.
As applied to the Senior Mortgage:
$475,000,000 × 1.75% = $8,312,500
Under N.Y.C. Admin. Code § 11-2603, the City MRT is payable by the "mortgagor" (i.e., the borrower), subject to contractual allocation between the parties. As noted above, the Ironclad term sheet provides that the Borrower bears all MRT costs, which is consistent with the statutory default.
We should also note for completeness that, in addition to the foregoing, there is a NYC special additional tax component at a rate of $0.30 per $100 (0.30%) applicable to certain commercial mortgages. When this component is added, the NYC rate effectively totals 2.05%. However, for purposes of this memorandum, we have computed the NYC component at $1.75 per $100 as the base NYC rate, and have added the 0.30% special additional tax as a separate line item in the combined rate table in Section III.D below, which together with the State taxes yields the aggregate 2.80% combined rate.
D. Combined Rate and Total MRT Liability
The following table summarizes the combined New York State and New York City MRT rates applicable to the Senior Mortgage, together with the dollar amount of MRT computed on the $475,000,000 principal obligation:
The combined effective rate of 2.80% represents the total MRT burden on a commercial mortgage of $500,000 or more recorded against real property in New York City. This rate has been in effect since July 1, 2019, and we are not aware of any pending legislative changes that would alter it prior to the anticipated closing date of June 15, 2025. However, as noted in Section XI (Outstanding Diligence and Action Items), we recommend confirming the current rate against the most recent NYC DOF rate schedule as the closing date approaches, particularly in light of the 2025 New York State budget negotiations, which could include adjustments to real estate transaction tax rates.
Under the Ironclad term sheet and the proposed structure, the anticipated allocation of MRT liability is as follows: 100% of the economic cost of MRT is borne by the Borrower and, ultimately, by MTDC. The NYS additional tax (0.25%, or $1,187,500) is nominally payable by the mortgagee (Ironclad, as administrative agent) but will be reimbursed by Borrower at closing. The remaining components are directly payable by the mortgagor (HYW Mortgage, as Borrower).
IV. Government Instrumentality Exemption Analysis
A. Statutory Framework (Tax Law § 252)
New York Tax Law § 252 sets forth the exemptions from the State MRT imposed under § 253. Subdivision 1 of § 252 provides, in relevant part, that the following mortgages are exempt from the tax:
"A mortgage or deed of trust given by or to the state of New York or by or to any municipality, political subdivision, district, or other governmental agency or instrumentality of the state, or by or to the United States of America or by or to any instrumentality of the United States."
The parallel New York City exemption is set forth in N.Y.C. Admin. Code § 11-2604, which exempts from the City MRT any mortgage where the mortgagor or mortgagee is "the state of New York or any of its agencies, instrumentalities, political subdivisions or public corporations, or the United States of America or any of its agencies or instrumentalities."
These exemptions are broadly similar in scope: they provide relief from MRT for mortgages "given by" (i.e., where the mortgagor is) or "to" (i.e., where the mortgagee is) a qualifying governmental entity. The threshold question for this transaction is whether MTDC — and, if so, its wholly-controlled SPE, HYW Mortgage LLC — qualifies as a governmental entity within the meaning of these provisions.
B. MTDC's Status as a Government Instrumentality
MTDC is a government instrumentality created by act of the Illinois General Assembly for the purpose of operating mass transit systems and developing transit-oriented properties. MTDC exercises governmental functions, including the operation of commuter rail lines, the issuance of tax-exempt bonds, and the exercise of eminent domain authority (within the State of Illinois). MTDC possesses attributes of sovereign immunity, is exempt from federal income tax under Section 115 of the Internal Revenue Code, and carries an investment-grade credit rating of A– from Pinnacle Ratings Group (identifier PRG-MTDC-A-2024-1187).
MTDC's financial profile is consistent with a substantial government entity: for FY2024, MTDC reported operating revenue of approximately $1,120,000,000, net assets of approximately $3,700,000,000, and a real estate portfolio with an aggregate value of approximately $4,800,000,000 spread across developments in eleven states. MTDC has previously been recognized as a government instrumentality by the Internal Revenue Service, the Securities and Exchange Commission (for purposes of municipal securities registration exemptions), and the courts of the State of Illinois.
The critical analytical question, however, is not whether MTDC is a "government instrumentality" in the abstract, but whether it is a government instrumentality within the meaning of the New York Tax Law § 252 exemption. On its face, § 252 exempts mortgages given by or to "the state of New York or . . . any municipality, political subdivision, district, or other governmental agency or instrumentality of the state" (emphasis added). The phrase "of the state" modifies the entire list of governmental entities and, on its most natural reading, limits the exemption to entities that are governmental agencies or instrumentalities of the State of New York.
We have reviewed the legislative history of § 252 and the available NYSDTF advisory opinions on this point. The exemption has historically been construed to apply to entities that are political subdivisions or instrumentalities of the State of New York — such as New York public benefit corporations, public authorities (e.g., the New York State Dormitory Authority, the Metropolitan Transportation Authority, the New York City Housing Authority), industrial development agencies, and school districts — as well as to instrumentalities of the United States (the federal prong). We have identified no advisory opinion or judicial decision extending the § 252 exemption to a government instrumentality of a sister state.
This result is consistent with the general principle that tax exemptions are matters of legislative grace and are to be strictly construed. See, e.g., Matter of Grace v. New York State Tax Comm'n, 37 N.Y.2d 193, 196 (1975) ("Exemption from taxation is the exception; absent clear and explicit statutory authorization, tax liability will not be excused."). In the absence of explicit statutory language extending the MRT exemption to instrumentalities of other states, we do not believe that a claim for exemption on behalf of MTDC would be sustained.
We have also considered whether MTDC could claim exemption on federal constitutional grounds — specifically, under the doctrine of intergovernmental tax immunity, which derives from the Supremacy Clause of the U.S. Constitution (Art. VI, cl. 2). Under this doctrine, state and local governments may not impose taxes that directly burden the operations of the federal government or its instrumentalities. See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819). However, this doctrine protects only federal instrumentalities from state taxation; it does not prohibit one state from taxing the instrumentalities of another state. The Tenth Amendment and the Compact Clause do not create a general prohibition on interstate taxation of governmental entities. Accordingly, we conclude that the intergovernmental tax immunity doctrine is inapplicable here because MTDC is a state (not federal) instrumentality, and New York is not constitutionally obligated to extend MRT exemptions to instrumentalities of Illinois.
Conclusion. MTDC itself likely does not qualify for the § 252 exemption as applied to the New York MRT. The exemption is limited to New York State governmental entities and instrumentalities of the United States, and MTDC, as an Illinois governmental instrumentality, falls outside its scope. While we cannot rule out the possibility that MTDC could seek a formal advisory opinion from the NYSDTF on this issue, we consider the prospects of a favorable ruling to be low, and the advisory opinion process (estimated 4–6 months) would not likely be completed before the June 15, 2025 closing date.
C. SPE Borrower Structure — Pass-Through of Exemption
Even if MTDC were determined to be a qualifying exempt entity under § 252, a separate and independently dispositive obstacle exists: the mortgage is being granted not by MTDC, but by Hudson Yards West Mortgage LLC, a private-form Delaware limited liability company. The question therefore arises whether MTDC's governmental status can "pass through" to a wholly-owned SPE that is not itself a governmental entity.
Under both the NYSDTF and NYC DOF positions, the MRT exemption under § 252 applies to the mortgagor (or mortgagee) as identified in the mortgage instrument. The mortgagor in this transaction is HYW Mortgage LLC, a Delaware limited liability company organized under the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq. HYW Mortgage is not organized under any governmental enabling statute; it does not possess sovereign immunity; it is not a public benefit corporation, public authority, or instrumentality of any government; and its organizational documents contain customary bankruptcy-remoteness provisions (including independent manager requirements, separateness covenants, and non-petition clauses) that are characteristic of private-sector special-purpose entities. The fact that HYW Mortgage's ultimate parent, MTDC, is a government instrumentality does not transform HYW Mortgage itself into a governmental entity.
This conclusion is supported by analogy to the treatment of subsidiaries of New York public authorities. In cases where public authorities such as the New York State Dormitory Authority or the New York City Housing Development Corporation have established subsidiary entities to hold real property and grant mortgages, the MRT exemption has been sustained — but in those cases, the subsidiary entity was itself created by state legislation, was itself a public benefit corporation or public authority, and qualified for the exemption in its own right. See, e.g., NYSDTF Advisory Opinion TSB-A-04(1)R (Jan. 15, 2004) (dormitory authority subsidiary organized under Public Authorities Law qualifies for exemption). By contrast, HYW Mortgage LLC is organized under the general Delaware LLC statute and derives no governmental status from its charter or organizational documents.
We have considered whether it would be feasible to restructure the transaction so that MTDC itself — rather than HYW Mortgage — grants the mortgage directly. In such a structure, the mortgagor would be MTDC, and the § 252 exemption argument (to the extent viable at all) could be made without the SPE pass-through problem. However, this approach is structurally incompatible with the Ironclad term sheet, which requires the mortgage borrower to be a bankruptcy-remote single-purpose entity with separateness covenants, an independent director, and limitations on additional indebtedness. Direct mortgage borrowing by MTDC — a large, multi-jurisdictional entity with substantial existing debt, operations, and potential tort liabilities — would not satisfy these requirements. Moreover, the Granite Peak mezzanine structure relies on a pledge of the membership interests in HYW Mortgage LLC held by HYW Mezzanine LLC; eliminating the SPE structure would dismantle the mezzanine collateral package. We do not believe that either Ironclad or Granite Peak would agree to restructure their respective facilities to accommodate a direct-mortgage-by-MTDC approach solely to support an uncertain MRT exemption claim.
Conclusion. The SPE structure precludes reliance on the § 252 exemption even if MTDC itself were deemed exempt. Restructuring the transaction to eliminate the SPE borrower is not feasible given lender requirements and the overall capital structure.
D. IDA / Public Authority Exemption Analogy
As an alternative to a direct claim of governmental exemption, we have considered whether the transaction could be structured through a New York Industrial Development Agency ("IDA") or comparable governmental conduit entity to achieve MRT exemption. Under this approach, the IDA would take a nominal interest in the Property (typically by acquiring fee title or a leasehold interest from the borrower and simultaneously leasing it back), and the mortgage would be given by the IDA rather than by the private borrower. Because an IDA is a public benefit corporation organized under N.Y. General Municipal Law Article 18-A, it qualifies as a governmental entity for purposes of § 252, and the mortgage it grants is exempt from MRT.
The typical IDA "straight-lease" transaction structure operates as follows: (i) the project owner transfers fee title (or assigns its leasehold) to the IDA; (ii) the IDA leases the property back to the project owner under a net lease (the "leaseback"); (iii) the IDA grants a mortgage on its fee or leasehold interest to the project lender; (iv) the mortgage given by the IDA is exempt from MRT under § 252; (v) at project completion or upon satisfaction of the loan, the IDA conveys the property back to the owner. This structure has been widely used in New York for decades to achieve MRT savings (as well as sales tax and real property tax benefits) in connection with qualifying economic development projects.
We evaluate the feasibility of an IDA conduit structure for the Hudson Yards West transaction as follows:
(a) IDA Approval and Public Hearing. An IDA transaction requires formal approval by the IDA's board of directors following a public hearing. The approval process typically requires 3–6 months from initial application to closing, and involves detailed cost-benefit analysis, environmental review, and community impact assessment. Given the target closing date of June 15, 2025, the timeline is extremely tight, and there is meaningful risk that an IDA application could not be processed in time. The New York City Industrial Development Agency ("NYCIDA"), which has jurisdiction over projects in the five boroughs, maintains a regular hearing and board meeting schedule, but applications are typically submitted months in advance.
(b) Eligibility and Policy Considerations. NYCIDA inducements are generally available for projects that promote economic development, job creation, and community benefit within New York City. The typical applicant is a New York-based business or a business relocating to or expanding within New York. MTDC is an out-of-state government instrumentality, and the Hudson Yards West project is a commercial mixed-use development. While the project will undoubtedly generate jobs and economic activity, the involvement of an out-of-state governmental entity as the project sponsor may raise policy questions for the NYCIDA board, and there is no assurance that the application would be approved.
(c) ULURP Approvals. The land use approvals for the Project were obtained through the Uniform Land Use Review Procedure (Application No. C 230415 ZSM), with approval by the City Planning Commission on September 12, 2023, and ratification by the City Council on October 25, 2023. These approvals did not contemplate IDA involvement, and introducing an IDA structure could potentially raise questions about consistency with the approved land use actions.
(d) NYCEDC Ground Lease. The Property is held under a ground lease from NYCEDC (CRFN 2020000198762). An IDA involvement would require the transfer of the leasehold interest (or a sub-leasehold interest) to the IDA, which would in turn require NYCEDC's consent and potentially a ground lease amendment. NYCEDC is a separate entity from NYCIDA, and its consent would be an additional approval requirement.
(e) Lender Resistance. The introduction of an IDA into the mortgage structure adds complexity to the lender's collateral package, title insurance, and enforcement rights. Ironclad and the syndicate lenders may resist an IDA structure, particularly given the additional parties, consents, and conditions involved.
Conclusion. An IDA conduit structure is theoretically available as a mechanism to achieve full MRT exemption on the Senior Mortgage. However, we consider this approach to be impractical for the Hudson Yards West transaction given the constraints of timeline, the out-of-state status of MTDC, the absence of prior IDA involvement in the ULURP approvals, the need for NYCEDC ground lease consent, and anticipated lender resistance. We do not recommend pursuing this structure absent specific client instruction, and we note that the MRT savings of $13,300,000, while substantial in absolute terms, must be weighed against the costs, delays, and execution risks of the IDA approach.
E. Recommendation on Exemptions
Based on the foregoing analysis, we conclude that no viable exemption eliminates or materially reduces the $13,300,000 MRT liability under the current transaction structure and applicable law. The government-instrumentality exemption under § 252 does not extend to out-of-state government instrumentalities, and even if it did, the exemption would not pass through to the privately organized SPE borrower. The IDA conduit structure, while theoretically effective, is impractical within the transaction timeline and parameters.
We recommend that MTDC budget for the full 2.80% MRT, payable at closing, and that the $13,300,000 be included in the sources-and-uses closing statement as a borrower closing cost funded from the MTDC equity contribution.
V. CEMA / Consolidation, Extension and Modification Agreement Analysis
A. Overview of CEMA Structure and Tax Savings Mechanism
The Consolidation, Extension and Modification Agreement ("CEMA") is the principal MRT mitigation tool in New York real estate finance. A CEMA transaction enables a borrower that is refinancing or replacing an existing mortgage to avoid paying MRT on the full amount of the new mortgage by "consolidating" the new mortgage with the existing mortgage and paying MRT only on the incremental "spread" — i.e., the excess of the new mortgage principal over the unpaid principal balance of the existing mortgage.
The CEMA mechanism is authorized by N.Y. Real Property Law § 255 and, for transactions involving banking organizations, by N.Y. Banking Law § 6-h. The statutory framework operates as follows:
(i) The existing mortgage is not satisfied and discharged; instead, the existing lender assigns the existing mortgage to the new lender (or, if the same lender, the mortgage remains in place);
(ii) The borrower executes a new mortgage (a "gap" or "spread" mortgage) securing the incremental amount of the new loan above the existing mortgage balance;
(iii) The borrower, the existing lender (or its assignee), and the new lender execute a CEMA, which consolidates the existing mortgage and the new spread mortgage into a single lien;
(iv) MRT is payable only on the spread mortgage — i.e., on the new money — not on the full amount of the consolidated mortgage.
The savings can be substantial. To illustrate: if a new $475,000,000 mortgage were recorded in connection with the refinancing of an existing $400,000,000 mortgage with a remaining balance of $380,000,000, the CEMA would consolidate the existing mortgage (balance: $380,000,000) with a new spread mortgage ($95,000,000 = $475,000,000 – $380,000,000), and MRT would be payable only on the $95,000,000 spread. At the 2.80% combined rate, the MRT on the spread would be $2,660,000, compared to the $13,300,000 that would be payable on a full $475,000,000 recording — a savings of $10,640,000. It is for this reason that CEMA transactions are nearly universal in New York commercial mortgage refinancings.
B. Availability of CEMA for the Transaction
Unfortunately, a CEMA is available only when there is an existing mortgage to consolidate with the new mortgage. In the present transaction, the Property (Block 729, Lots 1, 5, 12, and 15) is not currently encumbered by any mortgage.
Based on our preliminary title review and discussions with Sentinel Title & Escrow Company, the Property is subject to the NYCEDC Ground Lease (CRFN 2020000198762, dated June 1, 2020) and various easements, covenants, and restrictions, but no mortgage, building loan agreement, or project loan mortgage has been recorded against the fee or leasehold interest. MTDC acquired the leasehold interest under the Ground Lease without mortgage financing; the project has been funded to date through MTDC equity and internal resources.
The NYCEDC Ground Lease itself is not a "mortgage" for MRT purposes. A ground lease — even a long-term ground lease with a purchase option — is not a mortgage within the meaning of N.Y. Tax Law § 250(3) unless it is accompanied by a security interest or is otherwise structured as a financing transaction that the courts would recharacterize as a mortgage. There is no basis for treating the NYCEDC Ground Lease as a mortgage, and it cannot serve as the "existing mortgage" in a CEMA transaction.
Absent an existing mortgage to consolidate into the new Senior Mortgage, there is no CEMA "spread" and the CEMA mechanism produces zero MRT savings. The entire $475,000,000 principal obligation constitutes "new money" subject to MRT at the full 2.80% combined rate.
Conclusion. A standard CEMA is unavailable for this transaction because there is no existing mortgage on the Property to consolidate. The full $475,000,000 principal is subject to MRT.
C. CEMA Acquisition from a Third Party ("Purchased CEMA" or "Splinter Mortgage" Strategy)
In certain New York real estate transactions, a practice has developed — sometimes referred to as a "purchased CEMA" or "splinter mortgage" strategy — of acquiring an existing mortgage from an unrelated third party and consolidating it with a new mortgage to obtain MRT savings on the acquired mortgage balance. Under this approach, the borrower (or an affiliate) would identify a holder of an existing recorded mortgage on the subject property, negotiate to acquire or assign that mortgage to the new lender, and then consolidate it with the new mortgage through a CEMA.
We have evaluated whether this strategy could be employed for the Hudson Yards West transaction, but conclude that it is not available for the following reasons:
(i) Same-Property Requirement. Under N.Y. Tax Law § 255 and the applicable NYSDTF and NYC DOF guidance, the existing mortgage to be consolidated must encumber the same property that the new mortgage will encumber. A mortgage on unrelated property — even a mortgage held by the same parties — cannot be consolidated with a new mortgage on different property through a CEMA. The purpose of the CEMA mechanism is to provide tax relief in refinancing transactions, not to create a market for trading in mortgage recording tax credits across unrelated properties.
(ii) No Existing Mortgage on the Property. As discussed above, no existing mortgage encumbers Block 729, Lots 1, 5, 12, or 15. There is no mortgage — whether held by an affiliate, a prior owner, a prior lender, or any other party — that could serve as the basis for a purchased CEMA.
(iii) No Prior Mortgage from Ground Lease Acquisition. We have confirmed with the transaction team that no mortgage was granted or assigned in connection with MTDC's acquisition of the leasehold interest under the Ground Lease. MTDC took the leasehold free and clear of mortgage liens.
Conclusion. The "purchased CEMA" or third-party mortgage acquisition strategy is not feasible for this Property because no existing mortgage encumbers the Property and the CEMA mechanism requires consolidation of mortgages on the same property.
D. Future CEMA Opportunities
Although a CEMA is not available for the initial recording of the Senior Mortgage, we strongly recommend that the transaction documents be structured to preserve CEMA savings at any future refinancing, extension, or conversion of the Senior Loan. The following recommendations apply:
At Refinancing. If the Senior Mortgage is refinanced with a new lender (or the same lender under a new facility), a CEMA can be used at that time to consolidate the existing $475,000,000 Senior Mortgage with the replacement mortgage and pay MRT only on the incremental "spread" (i.e., the excess of the new loan principal over the then-outstanding balance of the Senior Mortgage). Given the magnitude of the Senior Mortgage, the potential CEMA savings at refinancing could be very substantial.
To preserve this opportunity, we recommend including the following CEMA-facilitation provisions in the Senior Mortgage loan documents:
(a) Lender Cooperation Covenant. A covenant by Ironclad (as administrative agent) to cooperate in good faith with any CEMA requested by the Borrower in connection with a refinancing of the Senior Loan, including by executing and delivering any assignments, consolidation agreements, and other instruments reasonably required to effectuate the CEMA.
(b) Assignment-of-Mortgage Mechanics. Provisions permitting the assignment of the Senior Mortgage from Ironclad (or its successors) to a replacement lender designated by Borrower for purposes of a CEMA consolidation, subject to customary conditions (including payment in full of the existing loan and compliance with applicable law).
(c) Reasonable Consent Standard. A representation that Ironclad will not unreasonably withhold, condition, or delay its consent to a mortgage assignment for CEMA purposes, and that any consent fee payable to Ironclad in connection with such assignment shall be limited to Ironclad's reasonable out-of-pocket costs (including legal fees).
We will flag these provisions for Clearfield & Associates LLP (Harrison Whitmore, counsel to Ironclad) in the markup of the mortgage loan agreement and coordinate with our team on the appropriate drafting.
At Extension Maturity. The Senior Loan provides for two one-year extension options (through June 15, 2030 and June 15, 2031). These extensions should be structured as modifications of the existing Senior Mortgage (effected through a modification agreement or allonge) rather than as new mortgages that would require fresh recording and payment of additional MRT. We will review the extension provisions in the loan documents to confirm that the extensions are effectuated by modification only and do not require the recording of a new mortgage or the payment of additional MRT. To the extent the extensions involve an increase in the principal amount secured (which is not anticipated under the current term sheet), MRT would be payable on the incremental increase.
Conversion to Permanent Financing. If the Senior Loan is ultimately converted from a construction loan to permanent financing (e.g., a mini-perm or long-term take-out loan), the conversion should be structured as a CEMA with the existing construction loan mortgage. This would allow the take-out lender to step into the shoes of the construction lender (through an assignment of the Senior Mortgage) and consolidate the existing mortgage with any new spread mortgage, paying MRT only on the incremental spread.
VI. Alternative MRT Reduction Strategies
In light of the unavailability of both the governmental exemption and CEMA savings, we have evaluated several alternative strategies that might reduce the $13,300,000 MRT liability. As discussed below, none of these alternatives offers material relief under the current transaction structure.
A. Split Mortgage / Multi-Note Structure
Under a split-mortgage or multi-note structure, instead of recording a single $475,000,000 mortgage, the lender would record two (or more) mortgages, each securing a separate promissory note and evidencing a separate component of the loan. For example, one mortgage might secure the "building loan" component (the portion of loan proceeds allocated to hard construction costs) and a separate mortgage might secure a "project loan" or "non-building loan" component (the portion allocated to soft costs, interest reserves, fees, and other non-construction items).
The rationale sometimes advanced for this structure is that splitting the loan into multiple notes and mortgages could yield MRT savings if one or more components could be structured to fall below a rate threshold or to receive different tax treatment. However, this theory does not withstand analysis:
(i) MRT Is Assessed on Total Principal. The MRT is imposed on the aggregate principal debt or obligation secured by the mortgage, regardless of the number of instruments. If two mortgages are recorded, each securing a portion of the $475,000,000 total, the aggregate MRT is the same as if a single mortgage were recorded for the full amount. The combined principal remains $475,000,000, and MRT at 2.80% remains $13,300,000.
(ii) No Rate Differential. Under N.Y. Tax Law § 253, § 253-a, and N.Y.C. Admin. Code § 11-2602, the rate applicable to a commercial mortgage of $500,000 or more is the same regardless of the number of mortgages or the allocation of principal among them. There is no lower rate for mortgages below $500,000 that could be exploited by splitting the loan into sub-$500,000 tranches, as each component of the $475,000,000 loan will far exceed $500,000.
(iii) Building Loan / Project Loan Distinction. The distinction between a "building loan mortgage" (subject to Lien Law § 22 building loan agreement requirements) and a "project loan mortgage" or non-building-loan mortgage is relevant for lien priority purposes under the Lien Law, but does not independently affect MRT rates. Both types of mortgages are subject to MRT at the same combined rate.
There is one theoretical exception: if a portion of the loan could be treated as unsecured or secured only by personalty (rather than realty), that portion would not be subject to MRT. However, the Ironclad term sheet requires a first-priority blanket lien on all real property interests of HYW Mortgage as collateral for the full $475,000,000 commitment. No portion of the Senior Loan can be carved out as unsecured or personal-property-only without violating the lender's collateral requirements.
Conclusion. A split-mortgage or multi-note structure does not reduce the aggregate MRT because the tax is assessed on the total principal secured regardless of the number of instruments recorded. We do not recommend this approach.
B. Gap Mortgage / Step-Up Structure
Under a gap mortgage or step-up structure, the Senior Mortgage would initially be recorded to secure a principal amount less than the full $475,000,000 commitment — for example, the amount of the initial construction draw — and subsequently increased as additional advances are made. MRT would be payable on the initial amount at recording, and on any subsequent increase when the modification or supplemental mortgage is recorded.
The theory underlying this approach is that by deferring the recording of a portion of the mortgage amount, the borrower can defer a portion of the MRT to later dates. However, this approach yields no aggregate savings: MRT is ultimately payable on the full $475,000,000 as it is committed and secured, whether paid all at once at initial recording or in installments as the mortgage is increased. The time value of money may provide a modest benefit from deferring payment of a portion of the MRT, but this benefit must be weighed against the following drawbacks:
(i) Lender Requirements. The Ironclad term sheet requires a first-priority mortgage lien from closing securing the full $475,000,000 commitment. A gap mortgage approach — under which the mortgage initially secures less than the full commitment — would be inconsistent with this requirement. The lender's commitment to fund up to $475,000,000 is conditioned on having a perfected first-priority lien on the Property from day one.
(ii) Title Insurance. The lender's title insurance policy must insure the first-priority lien of the mortgage in the full amount of the commitment ($475,000,000). A gap mortgage approach would require either a reduced initial policy amount (unacceptable to the lender) or a full-amount policy with subsequent date-down endorsements (adding cost and complexity).
(iii) Lien Priority Risk. In a building loan context, lien priority under the Lien Law depends in part on the filing of the building loan agreement and the advance schedule. A gap mortgage that does not secure the full commitment may create lien priority issues with respect to the unsecured portion.
(iv) Administrative Complexity. Recording supplemental mortgages or modifications to increase the secured amount involves additional recording fees, title endorsements, and administrative costs that offset any time-value-of-money benefit.
Conclusion. A gap mortgage or step-up structure is not recommended. It produces no net aggregate MRT savings, is inconsistent with Ironclad's collateral requirements, and introduces unnecessary complexity and lien priority risk.
C. Exemption for Building Loan Interest Reserve
A question sometimes raised in connection with building loan mortgages is whether the portion of the mortgage amount attributable to the capitalized interest reserve — i.e., the portion of loan proceeds that will be disbursed to pay debt service during the construction period — constitutes "principal" for MRT purposes, or whether it can be argued to be "interest" (and therefore excluded from the MRT base).
Under the Senior Loan, a portion of the $475,000,000 commitment — estimated at approximately $35,000,000, based on the preliminary budget — is allocated to a capitalized interest reserve. These funds will be held in a reserve account and drawn upon by the Borrower to make interest payments to the lender during the construction period, rather than being disbursed for hard or soft construction costs.
The prevailing view, supported by NYSDTF guidance and judicial authority, is that MRT is imposed on the "total amount of the debt or obligation secured by a mortgage at the date of the execution thereof, or which under the terms of the mortgage may be secured thereby at any future date." N.Y. Tax Law § 250(5). The capitalized interest reserve is included in the stated mortgage amount and is part of the debt secured by the mortgage. The fact that these funds will ultimately be used to pay interest does not change their character as a component of the principal debt at the time of execution and recording. The MRT is a recording tax, not an income tax, and it is computed on the face amount of the mortgage without adjustment for the intended use of proceeds.
We have reviewed NYSDTF advisory opinions addressing this issue. While there is no advisory opinion squarely holding that a capitalized interest reserve is always included in the MRT base (because the NYSDTF generally addresses specific fact patterns), the consistent position of the NYSDTF and the NYC DOF is that the MRT applies to the full principal amount stated in the mortgage, without deduction for interest reserves, contingency reserves, or other soft-cost components of the loan.
Conclusion. The interest reserve carve-out is not a reliable basis for MRT reduction. We recommend computing and paying MRT on the full $475,000,000 principal obligation, including the capitalized interest reserve component.
D. Recording in Multiple Counties
We note for completeness that N.Y. Tax Law § 260 provides for the allocation of MRT among multiple counties when a mortgage encumbers real property situated in more than one county. Under § 260, the tax is allocated among the counties in proportion to the value of the real property in each county.
This provision is not relevant to the present transaction. The entire Property is situated in New York County (the Borough of Manhattan), and the Senior Mortgage does not encumber any real property in any other county. There is no multi-county allocation issue.
VII. Building Loan Agreement Considerations
Because the Senior Loan is a "building loan" within the meaning of N.Y. Lien Law Article 2, a building loan agreement must be prepared and filed simultaneously with the Senior Mortgage. The building loan agreement requirements and their interaction with MRT are discussed below.
Under N.Y. Lien Law § 22, a "building loan contract" — defined as "a contract whereby a party thereto agrees, in connection with the improvement of real property, to make advances to or on behalf of another party thereto" — must be filed in the office where the building loan mortgage is recorded before or simultaneously with the recording of the mortgage. The failure to file the building loan agreement renders the building loan mortgage subordinate to subsequently filed mechanics' liens under Lien Law § 22(4), which would defeat the first-priority lien position that Ironclad requires. Accordingly, timely filing of the building loan agreement is a condition precedent to closing.
The building loan agreement must include a detailed statement of consideration, consisting of an itemized schedule of all advances to be made under the loan, including hard costs, soft costs, interest reserve, fees, and contingencies. Under Lien Law § 22(2), the statement of consideration must set forth "all of the considerations or thing of value, paid, given, or done as consideration for the obligation or for the privilege of making the advance."
With respect to MRT, the filing of the building loan agreement itself does not trigger any additional MRT beyond the tax payable on the Senior Mortgage. The building loan agreement is filed as an ancillary instrument to the mortgage and becomes part of the recorded mortgage package, but it is not a separate "mortgage" for MRT purposes. However, the loan amount stated in the building loan agreement must be consistent with the principal amount stated in the Senior Mortgage ($475,000,000). Any discrepancy could create title issues or raise questions with the City Register.
If a portion of the Senior Loan is characterized as a "project loan" (i.e., a non-building loan component, such as advances for land acquisition, pre-development costs, or other purposes not directly related to the "improvement" of real property), separate instruments may be required — specifically, a separate project loan mortgage and note. MRT is payable on the project loan mortgage as well, at the same combined rate. In the present transaction, we understand that the entire $475,000,000 commitment is to be documented as a building loan, with all advances allocated to construction-related costs (including hard costs, soft costs, interest reserve, and fees). We will confirm this characterization with the transaction team and with Ironclad's counsel.
The building loan agreement must also comply with the trust fund provisions of Lien Law Article 3-A, which imposes fiduciary obligations on the borrower with respect to building loan funds received. A separate memorandum on Lien Law compliance, including trust fund obligations, is being prepared by Rafael Dominguez and will be circulated to the transaction team under separate cover.
For reference, the principal items to be scheduled in the building loan agreement are as follows:
• Hard costs: $412,000,000 (per GMP contract with Cobalt Construction Group, Inc., Contract No. CCG-HYW-2025-001)
• Interest reserve: approximately $35,000,000 (estimated)
• Soft costs (architectural, engineering, legal, accounting, insurance, permits): approximately $15,000,000 (estimated)
• Lender fees and closing costs: approximately $5,000,000 (estimated)
• Contingency: approximately $8,000,000 (estimated)
• Total: $475,000,000
The final allocation will be reflected in the approved budget attached to the building loan agreement. We will coordinate with Cobalt Construction Group (Frank DelVecchio, Project Director; Gail Merriman, Senior Project Manager) on the schedule of advances and with Ironclad's construction consultant on budget approval.
VIII. Mezzanine Loan — Confirmation of Non-Applicability of MRT
The $200,000,000 mezzanine loan from Granite Peak Capital Partners, LP (the "Mezzanine Loan") is secured by a pledge of 100% of the membership interests in HYW Mortgage LLC held by HYW Mezzanine LLC. This is a security interest in personal property — specifically, a "general intangible" (or, more precisely, a "membership interest" in a limited liability company, which is treated as a general intangible under Article 9 of the Uniform Commercial Code) — perfected by the filing of a UCC-1 financing statement with the Delaware Secretary of State.
The MRT applies only to "mortgages" on "real property," as those terms are defined in N.Y. Tax Law §§ 250(3) and 250(4). A pledge of equity interests in an entity that owns real property is not a mortgage on real property. The New York courts and the NYSDTF have consistently held that the MRT is a tax on the recording of instruments that create a lien on real property, and that a security interest in the equity of a real-property-owning entity — even if the economic substance of the transaction is to provide indirect security for a loan secured by real property — is not a "mortgage" for MRT purposes.
Accordingly, no MRT is payable in connection with the recording or filing of the Mezzanine Loan documents. The UCC-1 financing statement will be filed with the Delaware Secretary of State (the state of organization of HYW Mezzanine LLC, the debtor), and no recording in the Office of the New York City Register is required.
We note, however, that care must be taken in drafting the Mezzanine Loan documents to ensure that no provision inadvertently creates a direct lien on real property that could be characterized as a "mortgage." For example, the Mezzanine Loan documents should not include a direct security interest in the leasehold interest, in fixtures that are treated as real property under New York law, or in any other interest that would constitute a "mortgage of real property" within

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