PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 55th Floor New York, New York 10006
TO: Douglas Fairchild; Angela Fontaine; Rafael Dominguez
FROM: Grace Nakamura
DATE: April 5, 2025
RE: Hudson Yards West — Insurance Requirements Under Senior Mortgage and Mezzanine Loan Documents Matter No. 1031-00004
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the individuals to whom it is addressed and should not be disclosed to any third party without the express written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any privilege.
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I. EXECUTIVE SUMMARY
This memorandum presents a comprehensive analysis of all insurance coverages required as conditions to closing and as ongoing covenants under (a) the Senior Mortgage Loan in the principal amount of Four Hundred Seventy-Five Million Dollars ($475,000,000), for which Ironclad National Bank, N.A. is acting as Agent (the "Senior Mortgage Loan"), and (b) the Mezzanine Loan in the principal amount of Two Hundred Million Dollars ($200,000,000), provided by Granite Peak Capital Partners, LP (the "Mezzanine Loan" and, together with the Senior Mortgage Loan, the "Loans"). The borrower under the Senior Mortgage Loan is expected to be HYW Mortgage LLC (upon formation), a single-purpose entity indirectly owned by MTDC Development Corp. ("MTDC"). The borrower under the Mezzanine Loan is expected to be HYW Mezzanine LLC (upon formation), which will pledge its membership interest in HYW Mortgage LLC as collateral for the Mezzanine Loan.
The purpose of this memorandum is to identify where the insurance requirements of the two sets of loan documents overlap, diverge, or create potential compliance gaps that must be addressed prior to closing. In particular, we have endeavored to reconcile the requirements of the Senior Mortgage Loan documents with those of the Mezzanine Loan documents, while also accounting for the baseline insurance obligations imposed by the ground lease and the requirements flowing from the guaranteed maximum price construction contract. The total project cost for the Hudson Yards West development (the "Project") is approximately Nine Hundred Twenty Million Dollars ($920,000,000), which figure encompasses hard construction costs, soft costs, financing costs, and reserves.
We note that Castleton Insurance Brokerage, Inc. ("Castleton"), with Brian Jessup serving as Account Executive, has been engaged as MTDC's insurance broker and will be responsible for the placement of all required coverages. Mr. Jessup has been briefed on the general scope of the required insurance program, but Castleton has not yet received a finalized set of lender insurance requirements, as the loan documents remain under negotiation. This memorandum is intended to serve as the definitive guide against which Castleton can structure its placement efforts.
The memorandum is organized by coverage type, progressing from builder's risk insurance (the most significant coverage for the construction phase) through commercial general liability, umbrella/excess liability, terrorism risk insurance, flood insurance, pollution legal liability, and the various additional required coverages. Each section identifies the requirements under both the Senior Mortgage Loan documents and the Mezzanine Loan documents, highlights areas of divergence, and provides recommendations for compliance. A comprehensive compliance matrix is appended as Annex A, which provides a side-by-side comparison of requirements across all relevant document sources.
We recommend that this memorandum be circulated to Castleton for placement confirmation ahead of the target closing date of June 15, 2025. Additionally, it should be shared with the teams at Clearfield & Associates LLP (Harrison Whitmore, counsel to the Senior Lender) and Voss Richter & Baines LLP (Natasha Ivanovic, counsel to the Mezzanine Lender) to confirm that our understanding of lender requirements is accurate and complete as loan documents are drafted.
II. OVERVIEW OF LOAN DOCUMENT INSURANCE PROVISIONS
A. Senior Mortgage Loan Documents
The Senior Mortgage Loan is governed by a Senior Mortgage Loan Agreement between HYW Mortgage LLC (as Borrower) and Ironclad National Bank, N.A. (as Agent for the lending syndicate), together with a Senior Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (the "Senior Mortgage") encumbering the leasehold interest in the Project Site. Both the Senior Mortgage Loan Agreement and the Senior Mortgage are being prepared by Clearfield & Associates LLP, with Harrison Whitmore as lead partner. As of the date of this memorandum, we have reviewed the most recent term sheet but have not yet received initial drafts of the loan documents.
The insurance requirements are expected to be principally set forth in Article VIII (Insurance Covenants) of the Senior Mortgage Loan Agreement, with corresponding provisions in the Senior Mortgage reinforcing the borrower's obligation to maintain insurance as a condition to avoiding an event of default. In addition, the Senior Mortgage Loan Agreement is expected to include an Exhibit D or comparable schedule listing the specific required coverages, limits, deductibles, endorsements, and other insurance specifications. This schedule typically serves as the operative insurance requirement that Castleton will need to satisfy.
The senior term sheet dated February 28, 2025 (the "Senior Term Sheet") contains a summary of insurance requirements at Section 14 (Insurance Requirements), which we have reviewed in detail. While the Senior Term Sheet is not the definitive statement of requirements (the loan documents will control), it provides a reliable indication of the insurance program that Ironclad will require. Key features of the Senior Term Sheet insurance section include:
(a) A requirement for "all risk" builder's risk insurance at full replacement cost during the construction period;
(b) Commercial general liability insurance with minimum limits of $1,000,000 per occurrence and $2,000,000 general aggregate;
(c) Umbrella/excess liability insurance with a combined limit of not less than $100,000,000;
(d) Terrorism risk insurance covering certified acts of terrorism at full policy limits, with a notation regarding Dunmore IndustriesR coverage that is flagged as "to be confirmed";
(e) Flood insurance "as required by applicable law or as otherwise determined by Agent in its reasonable discretion";
(f) Pollution legal liability insurance with limits and scope to be determined based upon environmental due diligence;
(g) Workers' compensation, employer's liability, commercial automobile liability, and professional liability coverages as customary for projects of similar scope in the New York metropolitan area; and
(h) A general requirement that all carriers maintain a minimum financial strength rating of A.M. Best A– (Excellent) / Financial Size Category VIII or better.
We will update this memorandum once initial drafts of the Senior Mortgage Loan documents are circulated, which we anticipate will occur on or about May 1, 2025.
B. Mezzanine Loan Documents
The Mezzanine Loan is governed by a Mezzanine Loan Agreement between HYW Mezzanine LLC (as Borrower) and Granite Peak Capital Partners, LP (as Mezzanine Lender), together with a Mezzanine Pledge and Security Agreement (the "Mezzanine Pledge Agreement") granting a first-priority security interest in HYW Mezzanine LLC's membership interest in HYW Mortgage LLC. The Mezzanine Loan documents are being prepared by Voss Richter & Baines LLP ("VRB"), with Natasha Ivanovic as lead partner.
The insurance obligations under the Mezzanine Loan documents are expected to be set forth in Article VII (Insurance) of the Mezzanine Loan Agreement and in corresponding provisions of the Mezzanine Pledge Agreement. The mezzanine term sheet dated March 7, 2025 (the "Mezzanine Term Sheet") contains its own insurance schedule at Exhibit C (Insurance Requirements), which generally tracks the Senior Term Sheet requirements but includes certain supplemental provisions.
A critical feature of the Mezzanine Loan documents is the incorporation by reference of the Senior Mortgage Loan insurance requirements. The Mezzanine Term Sheet provides that the mezzanine borrower shall cause the mortgage borrower to maintain all insurance required under the Senior Mortgage Loan documents, and that such insurance shall also comply with the additional requirements set forth in the Mezzanine Loan Agreement. This incorporation mechanism means that, in practice, the insurance program must satisfy the more stringent of the two sets of requirements on a provision-by-provision basis. However, the incorporation by reference also creates the potential for ambiguity where the Mezzanine Loan documents impose supplemental requirements that are not perfectly harmonized with the Senior Mortgage Loan documents.
Specific supplemental requirements noted in the Mezzanine Term Sheet include:
(a) Granite Peak is to be named as an additional loss payee on all property insurance policies, subject to the terms of the intercreditor agreement governing the relative priority of Ironclad and Granite Peak with respect to insurance proceeds;
(b) Granite Peak requires a consent right (which may be limited to a "reasonableness" standard) over any modification, waiver, or amendment of the Senior Mortgage Loan insurance requirements;
(c) The Mezzanine Lender reserves the right to require additional insurance coverages or higher limits if, in its reasonable judgment, changes in the risk profile of the Project warrant enhanced coverage; and
(d) Granite Peak requires separate notice of cancellation, non-renewal, or material change directly from the insurer or via a supplemental notice endorsement, independent of any notice provided to Ironclad.
We will similarly update this memorandum upon receipt of initial drafts of the Mezzanine Loan documents.
C. Ground Lease Insurance Obligations
The Project Site is held pursuant to a ground lease dated June 1, 2020 (the "Ground Lease"), between the New York City Economic Development Corporation ("NYCEDC"), as ground lessor, and MTDC Development Corp., as ground lessee, recorded at CRFN 2020000198762 in the Office of the City Register of the City of New York. The Ground Lease imposes its own baseline insurance requirements on the ground lessee, which are set forth in Article 12 (Insurance) of the Ground Lease.
It is essential that the insurance program placed by Castleton satisfy not only the Loan document requirements but also the Ground Lease minimums. Any failure to maintain insurance required under the Ground Lease would constitute a default thereunder, which in turn would constitute a default under the Senior Mortgage Loan documents (the security for the Senior Mortgage Loan being the leasehold interest under the Ground Lease). The Ground Lease insurance requirements generally represent a baseline that is less stringent than the Loan document requirements; however, certain Ground Lease provisions impose specific requirements that must be tracked independently, including:
(a) NYCEDC is required to be named as an additional insured on all liability policies;
(b) The Ground Lease requires a minimum of sixty (60) days' prior written notice of cancellation or non-renewal (which is more protective than certain standard policy terms and may exceed the notice period specified in the Loan documents);
(c) The Ground Lease requires that all insurance be procured from carriers authorized to do business in the State of New York (i.e., admitted carriers), without an express exception for surplus lines placements; and
(d) The Ground Lease includes specific requirements regarding the scope of pollution liability coverage that may need to be reconciled with the Loan document pollution insurance requirements.
We recommend that Castleton prepare a separate compliance checklist for Ground Lease insurance requirements and confirm compliance in writing to NYCEDC prior to closing.
D. GMP Contract Insurance Requirements
MTDC has entered into a Guaranteed Maximum Price Construction Contract, Contract No. CCG-HYW-2025-001 (the "GMP Contract"), with Cobalt Construction Group, Inc. ("Cobalt"), establishing a guaranteed maximum price of Four Hundred Twelve Million Dollars ($412,000,000) for the construction of the Project. The GMP Contract contains its own insurance requirements, set forth in Article 11 (Insurance and Bonds) thereof, which allocate responsibility for various coverages between the owner and the contractor.
The allocation of insurance procurement responsibility between MTDC (as owner) and Cobalt (as general contractor) is a threshold question that affects how the lender insurance requirements are satisfied. Under the current GMP Contract structure, the following general allocation applies:
Owner-Procured Coverages: Builder's risk insurance; owner's CGL (if separate from contractor CGL); umbrella/excess liability (owner's layer); pollution legal liability (owner's PLL policy); flood insurance; permanent property insurance.
Contractor-Procured Coverages: Contractor's CGL; contractor's workers' compensation and employer's liability; commercial automobile liability; contractor's pollution liability; subcontractor default insurance (if applicable); professional liability for design-build subcontractors.
An important open item is whether MTDC and Cobalt will implement an Owner-Controlled Insurance Program (OCIP) or a Contractor-Controlled Insurance Program (CCIP) — commonly referred to as a "wrap-up" insurance program — that would consolidate certain coverages (principally CGL, workers' compensation, and excess liability) under a single program administered by one party. A wrap-up structure can produce cost savings through volume purchasing and elimination of coverage gaps, but it also concentrates insurance administration responsibility. As of the date of this memorandum, the wrap-up decision remains under discussion between MTDC and Cobalt. We recommend that this decision be finalized no later than May 1, 2025, to allow sufficient time for Castleton to structure the insurance program accordingly, and for the Loan documents to reflect the chosen structure.
Contacts at Cobalt for insurance coordination purposes are Hiroshi Tanaka (Senior Vice President, Risk Management) and Gail Merriman (Director of Insurance).
III. BUILDER'S RISK INSURANCE
Builder's risk insurance is the most significant coverage for the construction phase of the Project and represents the largest single insurance expenditure. Both the Senior Mortgage Loan documents and the Mezzanine Loan documents impose detailed requirements with respect to builder's risk coverage, and the requirements are substantially (though not entirely) aligned.
A. Coverage Amount and Valuation Basis
Both the Senior Term Sheet and the Mezzanine Term Sheet require builder's risk insurance in an amount not less than the full replacement cost of the improvements under construction at the Project Site. Based on the current construction budget and anticipated escalation, we recommend a minimum coverage amount of Five Hundred Million Dollars ($500,000,000), which represents the estimated full replacement cost of improvements at completion. The Project Site is located at 450 West 34th Street, New York, New York (Block 729, Lots 1, 5, 12, and 15 on the Tax Map of the Borough of Manhattan).
The policy must be written on a completed value form (non-reporting basis), meaning that the full insurable value is established at policy inception and no periodic value reporting is required during the construction period. This is the standard form required by institutional construction lenders and eliminates the risk of a coinsurance penalty arising from underreporting.
The builder's risk policy must cover, at a minimum:
(a) All hard costs of construction, including labor, materials, and equipment incorporated into the improvements;
(b) Soft costs, to the extent required by the Senior Lender (and we anticipate that Ironclad will require soft cost coverage, including interest expense, real estate taxes, insurance premiums, architectural and engineering fees, legal fees, and other carrying costs incurred during a delay resulting from an insured peril);
(c) Materials in transit to the Project Site, whether transported by the contractor, subcontractors, or common carriers; and
(d) Materials stored off-site at approved locations, subject to such conditions as the insurer may impose regarding security, inventory controls, and maximum values at any single off-site location.
The Mezzanine Term Sheet does not specify a separate minimum coverage amount but incorporates the Senior Mortgage Loan requirement by reference. We do not anticipate a conflict between the two sets of documents on this point.
B. Carrier and Policy Identification
Castleton has identified Fortis Indemnity Insurance Co. ("Fortis Indemnity") as the proposed lead carrier for the builder's risk placement. Fortis Indemnity is a mutual insurance company domiciled in the State of Connecticut and authorized to transact insurance business in the State of New York.
Both the Senior Term Sheet and the Mezzanine Term Sheet require that the builder's risk carrier maintain a minimum financial strength rating of A.M. Best A– (Excellent) / Financial Size Category VIII or better, or an equivalent rating from S&P (A– or better) or Moody's. Castleton must provide evidence confirming that Fortis Indemnity meets this threshold. We understand that Fortis Indemnity currently holds an A.M. Best rating of A (Excellent) / Financial Size Category IX, which would satisfy both lenders' requirements, but this must be confirmed in writing by Castleton with a current copy of the rating affirmation.
We note, for the avoidance of confusion, that the Pinnacle Ratings Group report (PRG-MTDC-A-2024-1187) that has been circulated in connection with the Project pertains to MTDC's corporate credit rating and financial capacity, not to any insurance carrier's financial strength. This report should not be referenced or relied upon in connection with the carrier rating requirements under the Loan documents.
If the full $500,000,000 builder's risk limit cannot be placed with Fortis Indemnity alone, a quota-share or layered co-insurance structure with participating carriers may be necessary. Each participating carrier must independently satisfy the minimum rating requirement, and the lead carrier (Fortis Indemnity, or such other carrier as may be designated) must be acceptable to both Ironclad and Granite Peak.
C. Named Insureds and Loss Payees
The builder's risk policy must include the following designations:
First Named Insured: MTDC Development Corp. (or HYW Mortgage LLC, upon formation and conveyance of the leasehold interest). The first named insured designation carries significant administrative rights, including the right to receive notices, request endorsements, and file claims on behalf of all insureds. It is anticipated that upon formation of HYW Mortgage LLC, the named insured designation will be amended to reflect the single-purpose entity structure required by the Loan documents.
Additional Named Insureds:
(a) HYW Mezzanine LLC (upon formation);
(b) Cobalt Construction Group, Inc., as general contractor; and
(c) Such other parties as may be required by the Loan documents or the GMP Contract (including, potentially, major subcontractors designated by Cobalt, subject to lender approval).
Mortgagee / Loss Payee: Ironclad National Bank, N.A., as Agent, its successors and assigns, pursuant to a "standard" or "New York standard" mortgagee clause. The mortgagee clause must provide that the interest of the mortgagee shall not be invalidated by any act or neglect of the borrower, that the insurer shall give the mortgagee at least thirty (30) days' prior written notice of cancellation (ten (10) days in the case of cancellation for non-payment of premium), and that the mortgagee shall have the right to receive loss payments directly in accordance with the Loan documents.
Additional Loss Payee: Granite Peak Capital Partners, LP, as its interest may appear (ATIMA), subject to the terms and conditions of the intercreditor agreement between Ironclad and Granite Peak. The priority of loss payments between the Senior Lender and the Mezzanine Lender is governed by the intercreditor provisions discussed in Section XI below, and the loss payee endorsement for Granite Peak should reflect this subordinate position.
D. Policy Form and Endorsements
The builder's risk policy must be written on an "all risk" or "special causes of loss" basis (ISO Form CP 00 20, or a manuscript form providing equivalent or broader coverage). The "all risk" designation means that the policy covers all risks of direct physical loss or damage to covered property, except those risks specifically excluded by the policy terms.
The following endorsements are required under the Loan documents (and, to the extent not expressly required, are recommended to ensure comprehensive coverage consistent with the scale and complexity of the Project):
(i) No Coinsurance Penalty / Agreed Amount Endorsement. The policy must include either (a) an agreed amount endorsement waiving the coinsurance clause, or (b) a completed value clause that eliminates the risk of a coinsurance penalty. This is essential given the $500,000,000 policy limit and the fact that the insurable value will increase over the construction period as improvements are completed.
(ii) Ordinance or Law Coverage. Coverage for the additional costs arising from the enforcement of any law or ordinance regulating the construction, repair, or demolition of buildings, including: (a) coverage for the loss in value of the undamaged portion of the building if the building is required to be demolished; (b) coverage for the cost of demolition of the undamaged portion; and (c) coverage for the increased cost of construction to comply with current building codes and ordinances when rebuilding. Given the complexity of the New York City Building Code and Zoning Resolution, and the potential for code changes during the construction period, this coverage is critical.
(iii) Earth Movement / Earthquake Coverage. The Senior Term Sheet permits earthquake coverage to be provided subject to a sublimit, rather than at the full policy limit. We anticipate that the minimum acceptable earthquake sublimit will be in the range of $50,000,000 to $100,000,000, although the specific amount remains subject to negotiation with the lenders. Manhattan is located in USGS Seismic Zone 2A (moderate seismic hazard), and while the probability of a significant seismic event is relatively low, the potential for catastrophic loss is sufficient to warrant substantial coverage. The earthquake sublimit acceptable to Ironclad and Granite Peak must be confirmed prior to placement.
(iv) Windstorm / Named Storm Coverage. The Senior Term Sheet provides that windstorm and named storm coverage shall be provided at the full policy limit, with no separate sublimit, or, if a separate sublimit is required due to market conditions, that any such sublimit shall be subject to the Agent's prior written approval and shall not be less than an amount to be agreed. Given that the Project Site is located in western Manhattan in proximity to the Hudson River, and given recent catastrophic storm events affecting the New York metropolitan area, we anticipate that Ironclad will strongly resist any windstorm sublimit. Castleton should be prepared to procure full-limit windstorm coverage.
(v) Delay in Completion / Soft Costs Coverage. We anticipate that the Senior Mortgage Loan documents will require delay in completion coverage (also referred to as "soft cost" coverage) as part of the builder's risk program. This coverage reimburses the insured for continuing fixed expenses — including debt service, real estate taxes, insurance premiums, and certain professional fees — incurred during a delay in the construction schedule resulting from an insured loss. The coverage period is typically measured from the date of loss through the date the project would have been completed but for the loss, subject to a maximum indemnity period (commonly 12 to 18 months). The Mezzanine Term Sheet does not specifically address soft cost coverage but incorporates the Senior Mortgage Loan requirement by reference.
(vi) Debris Removal Coverage. Coverage for the cost of removing debris resulting from an insured loss, in an amount equal to at least twenty-five percent (25%) of the amount of the covered loss, or a minimum of $5,000,000, whichever is greater. New York City imposes significant regulatory requirements on debris removal (including asbestos abatement, lead paint protocols, and disposal requirements), and the costs of compliant debris removal can be substantial.
(vii) Pollutant Clean-Up and Removal. Coverage for the cost of extracting, removing, or disposing of pollutants from land or water at the Project Site resulting from an insured loss. This coverage is distinct from the standalone pollution legal liability policy discussed in Section VIII below and addresses only pollution conditions caused by an insured builder's risk peril (e.g., a fire that releases hazardous materials stored on-site).
(viii) Testing and Commissioning Coverage. Coverage for loss or damage to building systems and equipment during testing and commissioning, including mechanical, electrical, plumbing, fire protection, and elevator systems. Given the complexity of the building systems in a large-scale mixed-use development, this endorsement is essential to avoid coverage gaps during the transition from construction to occupancy.
(ix) Scaffolding, Temporary Structures, and Construction Plant. Coverage for loss or damage to scaffolding, temporary structures, falsework, forms, and construction plant on the Project Site. Confirm that the policy does not contain exclusions for temporary works that would create a gap in coverage during the construction phase.
(x) Permission to Occupy Prior to Completion. An endorsement permitting partial occupancy of completed portions of the building prior to final completion of the entire Project, without voiding or impairing the builder's risk coverage. This is particularly important given that the Project may receive a Temporary Certificate of Occupancy (TCO) for certain floors or areas while construction continues on other portions of the building. The endorsement should provide that the builder's risk coverage continues in full force and effect notwithstanding such partial occupancy, subject to reasonable conditions.
E. Deductible Limits
The Senior Term Sheet specifies a maximum allowable per-occurrence deductible of $250,000 for standard covered perils under the builder's risk policy. The Mezzanine Term Sheet incorporates this requirement by reference but adds a provision requiring the Mezzanine Lender's prior written consent (not to be unreasonably withheld, conditioned, or delayed) if the borrower proposes to accept any deductible in excess of $250,000.
Separate and higher deductibles are permitted for the following perils, subject to lender approval:
Windstorm / Named Storm: A percentage-based deductible in the range of 2% to 5% of the total insurable value (TIV) at the Project Site is common in the current market and is anticipated to be acceptable to the lenders. Based on a TIV of $500,000,000, a 2% deductible would be $10,000,000 and a 5% deductible would be $25,000,000. We recommend negotiating for a 2% windstorm deductible, as the lower deductible reduces the borrower's out-of-pocket exposure and may be more readily acceptable to both lenders.
Earthquake: The earthquake deductible is typically a percentage of TIV, commonly in the range of 2% to 5%. Given that earthquake is being provided on a sublimited basis, the deductible percentage may apply to the sublimit rather than the full TIV, depending on the policy terms negotiated by Castleton.
Flood: If the builder's risk policy includes flood coverage (as distinct from the standalone flood insurance discussed in Section VII), the flood deductible may be subject to a separate cap, typically in the range of $250,000 to $500,000.
We flag that the Mezzanine Lender's consent rights regarding deductible thresholds may create a practical issue if the market available deductibles exceed the levels specified in the Loan documents. Castleton should be prepared to present market data supporting the proposed deductible structure, and we should confirm with VRB (Natasha Ivanovic) whether the Mezzanine Lender's consent right is subject to a reasonableness standard or is more restrictive.
F. Policy Period and Transition to Permanent Coverage
The builder's risk policy must incept no later than the date of construction commencement, which is currently projected to be June 15, 2025 (coinciding with the target closing date for the Loans). The policy must remain in effect through the projected date of substantial completion, currently estimated to be December 15, 2027, plus a tail period of not less than ninety (90) days and preferably one hundred eighty (180) days following substantial completion. The tail period provides coverage for loss or damage to completed improvements during the period between substantial completion and the commencement of permanent property insurance.
The Loan documents will impose an obligation on the borrower to convert from builder's risk insurance to permanent "all risk" property insurance upon the earlier of (a) the issuance of the first Temporary Certificate of Occupancy (TCO) for any portion of the Project, projected to occur on or about March 15, 2028, or (b) the expiration of the builder's risk policy (including any tail period). The permanent property insurance requirements are discussed in Section IX.D below.
We identify a potential gap risk between the date of substantial completion (December 15, 2027) and the projected date of the first TCO (March 15, 2028) — a period of approximately three months during which the Project may be substantially complete but not yet authorized for occupancy. The builder's risk tail period should be calibrated to bridge this gap. If the tail period is set at 90 days, it would expire approximately March 15, 2028, coinciding with the projected TCO date. We recommend a 180-day tail to provide a buffer against construction delays, as any delay in achieving substantial completion would compress or eliminate the overlap between the builder's risk tail and the permanent property coverage inception. Castleton should confirm with Fortis Indemnity the availability and cost of a 180-day tail.
IV. COMMERCIAL GENERAL LIABILITY INSURANCE
A. Coverage Limits
The Senior Term Sheet and the Mezzanine Term Sheet both require the borrower to maintain, or cause to be maintained, commercial general liability ("CGL") insurance with the following minimum limits:
A per project aggregate endorsement (ISO CG 25 03 or equivalent) is required, ensuring that the general aggregate limit applies separately to the Project rather than being shared across all of the insured's projects. This endorsement is critical for a project of this scale, as it prevents an unrelated loss at another MTDC project from eroding the aggregate limit available for the Hudson Yards West development.
The CGL policy must be written on an occurrence basis (not a claims-made basis) using ISO Form CG 00 01 or a manuscript form providing equivalent or broader coverage. The policy should include coverage for premises and operations, products and completed operations, and independent contractors.
B. Additional Insureds
The following parties must be named as additional insureds on the CGL policy, on a primary and non-contributory basis:
(a) Ironclad National Bank, N.A., as Agent, and its successors and assigns;
(b) Granite Peak Capital Partners, LP;
(c) The New York City Economic Development Corporation (NYCEDC), as required by the Ground Lease;
(d) HYW Mortgage LLC (upon formation);
(e) HYW Mezzanine LLC (upon formation); and
(f) Such other parties as the lenders may reasonably designate from time to time.
The additional insured endorsement must be provided using ISO Form CG 20 10 (Additional Insured — Owners, Lessees, or Contractors — Scheduled Person or Organization) and ISO Form CG 20 37 (Additional Insured — Owners, Lessees, or Contractors — Completed Operations), or manuscript equivalents providing equivalent or broader coverage. The use of both endorsements ensures that additional insured status extends to both ongoing operations and completed operations — a critical distinction, as claims arising from construction defects or latent conditions may not manifest until after construction is complete.
The "primary and non-contributory" requirement means that the CGL policy must respond to covered claims on behalf of the additional insureds on a primary basis, without seeking contribution from any other insurance available to the additional insureds. This is typically achieved through ISO Form CG 20 01 (Primary and Non-Contributory — Other Insurance Condition) or equivalent language incorporated into the additional insured endorsement.
C. Contractor CGL
Under the GMP Contract, Cobalt Construction Group, Inc. is obligated to maintain its own CGL policy with limits of not less than $2,000,000 per occurrence and $4,000,000 general aggregate (per project). Cobalt's CGL must name MTDC (and the SPE borrower entities), the lenders, and NYCEDC as additional insureds in the same manner described above.
Cobalt is further required to flow down the CGL insurance requirements to all subcontractors, with minimum limits scaled to the subcontract value:
• Subcontracts over $5,000,000: $2,000,000 per occurrence / $4,000,000 general aggregate
• Subcontracts between $1,000,000 and $5,000,000: $1,000,000 per occurrence / $2,000,000 general aggregate
• Subcontracts under $1,000,000: $1,000,000 per occurrence / $2,000,000 general aggregate
All subcontractor CGL policies must include a waiver of subrogation in favor of the owner, the lenders, and Cobalt. Cobalt is responsible for collecting and maintaining certificates of insurance from all subcontractors and for ensuring that no subcontractor commences work on-site without evidence of the required insurance being on file.
If the parties elect to implement an OCIP or CCIP structure, the contractor and subcontractor CGL requirements may be modified, as the wrap-up program would consolidate CGL coverage under a single policy. The wrap-up decision, as noted in Section II.D above, remains pending.
D. Key Exclusions to Review
Castleton should carefully review the CGL policy form for the following exclusions that are commonly encountered in New York construction CGL policies and that may be objectionable to the lenders:
(i) Exterior Insulation and Finish Systems (EIFS). Many CGL carriers have introduced exclusions for claims arising from EIFS, particularly in the wake of extensive mold and moisture litigation. If the Project design includes EIFS or similar synthetic stucco systems, coverage for EIFS-related claims must be confirmed.
(ii) Residential Exclusions. If any component of the Project includes residential uses (condominiums, rental apartments, or affordable housing units), carriers may seek to impose exclusions for residential construction claims. Any such exclusion would be unacceptable to the lenders and must be removed or narrowed to the extent applicable.
(iii) New York State Labor Law Exclusions. New York Labor Law Sections 200, 240(1) (the "Scaffold Law"), and 241(6) impose strict and, in the case of Section 240(1), absolute liability on property owners and general contractors for construction-site injuries. Some CGL carriers attempt to exclude or sublimit coverage for Labor Law claims, particularly Section 240(1) claims. Any such exclusion or sublimit would be wholly unacceptable given the labor law exposure inherent in a project of this scope and must be rejected.
(iv) Project-Specific Exclusions. Confirm that the CGL policy does not contain any project-specific exclusions (e.g., exclusions for specific job sites, specific types of construction, or specific hazards) that would limit coverage for the Hudson Yards West Project.
We recommend that Castleton provide redacted copies of the proposed CGL policy forms and endorsements for our review prior to binding coverage, so that we may identify any exclusions that may be objectionable to the lenders.
V. UMBRELLA / EXCESS LIABILITY INSURANCE
A. Required Limits
Given the total project cost of approximately $920,000,000, the Project's location in a densely populated area of midtown Manhattan, the anticipated pedestrian and vehicular traffic in the vicinity of the Project Site, and the significant New York Labor Law exposure, both lenders are expected to require a combined umbrella/excess liability limit of not less than One Hundred Million Dollars ($100,000,000). The Senior Term Sheet specifies this amount, and the Mezzanine Term Sheet incorporates the Senior Mortgage Loan requirement by reference.
We note that the $100,000,000 limit represents a minimum threshold and that the lenders reserve the right to require a higher limit if, based on the final risk profile of the Project or changes in market conditions, a higher limit is deemed appropriate. For a project of this scale and complexity in New York City, a $100,000,000 umbrella/excess tower is consistent with current market practice, though some recent comparable transactions have required combined limits of $150,000,000 or more. Castleton should advise whether the $100,000,000 limit is achievable in the current market at a reasonable premium.
The umbrella/excess liability insurance must follow form over the following underlying policies:
(a) Commercial general liability;
(b) Commercial automobile liability; and
(c) Employer's liability.
A layered tower structure is acceptable, meaning that the $100,000,000 limit may be achieved through a combination of a lead umbrella policy and one or more excess layers, each attaching above the prior layer. The attachment points of each layer must be clearly identified, and there must be no gaps in coverage between layers. A typical structure might consist of:
• Lead Umbrella: $25,000,000 excess of underlying limits
• First Excess Layer: $25,000,000 excess of $25,000,000
• Second Excess Layer: $25,000,000 excess of $50,000,000
• Third Excess Layer: $25,000,000 excess of $75,000,000
The specific layering structure will depend on market capacity and pricing, and Castleton should present the proposed tower structure for lender review and approval prior to binding.
B. Additional Insureds and Drop-Down Provisions
The umbrella/excess liability policies must include the same additional insured parties as the underlying CGL policy, specifically Ironclad (as Agent), Granite Peak, NYCEDC, HYW Mortgage LLC, and HYW Mezzanine LLC. The additional insured status on the umbrella/excess policies must be no more restrictive than the additional insured coverage provided under the underlying CGL.
Each policy in the excess tower must be true follow-form, meaning that it adopts the same terms, conditions, and exclusions as the immediately underlying policy (or, in the case of the lead umbrella, the scheduled underlying policies). Any restriction, limitation, or exclusion in an excess layer that is not present in the underlying coverage creates a potential gap that would be objectionable to the lenders.
Each umbrella/excess policy must include a drop-down provision providing that if any underlying aggregate limit is exhausted by the payment of claims, the umbrella/excess policy will "drop down" to provide coverage in place of the exhausted underlying aggregate, subject to a retention (typically equal to the underlying per-occurrence limit or a specified self-insured retention).
C. Carrier Rating Requirements
Each carrier participating in the umbrella/excess tower must independently meet the minimum financial strength rating of A.M. Best A– (Excellent) / Financial Size Category VIII or better (or equivalent S&P or Moody's rating). This requirement applies to every layer of the tower, not solely to the lead umbrella carrier. Castleton should confirm the current ratings of all proposed participating carriers in writing, and we will review the ratings against the Loan document requirements.
Given the size of the tower and the limited capacity of individual carriers in the New York excess liability market, it is possible that certain layers may need to be placed with London market carriers (Lloyd's syndicates). If London market participation is proposed, we will need to confirm that Lloyd's syndicates satisfy the lender rating requirements, as Lloyd's syndicates are not rated individually by A.M. Best in the same manner as domestic carriers. Typically, Sundial Indemnity Co. carries an overall A.M. Best rating of A (Excellent) / Financial Size Category XV, which would satisfy the requirement, but this should be confirmed with the lenders.
VI. TERRORISM RISK INSURANCE (TRIA)
A. TRIA Act Coverage
Both the Senior Term Sheet and the Mezzanine Term Sheet require that all property and liability insurance policies include coverage for "certified acts of terrorism" as defined under the Terrorism Risk Insurance Act of 2002, as amended and most recently reauthorized by the Terrorism Risk Insurance Program Reauthorization Act of 2019 (collectively, "TRIA"). TRIA provides a federal backstop for insured losses resulting from certified acts of terrorism, under which the federal government reimburses insurers for a portion of losses exceeding specified thresholds.
Under TRIA, a "certified act of terrorism" is an act that is certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General, to be an act of terrorism committed on behalf of a foreign person or foreign interest, resulting in aggregate industry insured losses exceeding $200,000,000. The certification requirement is significant because domestic acts of terrorism that are not certified are not covered under the TRIA program (though they may be covered under the base policy terms, depending on the policy's terrorism-related exclusions).
The lender requirement is that all builder's risk, property, general liability, umbrella/excess, and workers' compensation policies include TRIA coverage and that the insured not elect to decline TRIA coverage when offered by the carrier. The cost of TRIA coverage is borne by the borrower.
B. Dunmore IndustriesR Coverage
A critical open issue is whether the lenders require coverage for nuclear, biological, chemical, and radiological (Dunmore IndustriesR) acts of terrorism, or whether TRIA-certified-acts-only coverage is sufficient.
TRIA itself does not distinguish between conventional and Dunmore IndustriesR terrorism; however, many insurance carriers exclude Dunmore IndustriesR events from their base policy forms, and TRIA coverage (which is triggered only for certified acts of terrorism) may not provide adequate protection against the full spectrum of terrorism risks if Dunmore IndustriesR events are excluded from the underlying policy.
This distinction is particularly relevant because Ironclad has indicated that the Senior Mortgage Loan may be originated with a view toward potential securitization (i.e., sale of the loan into a commercial mortgage-backed securities (CMBS) transaction). CMBS transactions typically impose heightened terrorism insurance requirements, including standalone Dunmore IndustriesR terrorism coverage, in order to satisfy rating agency criteria and investor expectations. If the Senior Mortgage Loan is securitized, the borrower will likely be required to procure Dunmore IndustriesR coverage at the time of securitization, and the Loan documents may include a prospective covenant to this effect.
We recommend that the following approach be adopted:
(a) At closing, all policies should include TRIA coverage for certified acts of terrorism, as required by both lenders;
(b) The Senior Mortgage Loan documents should address whether standalone Dunmore IndustriesR coverage is required at closing or whether the borrower's obligation to procure Dunmore IndustriesR coverage is triggered only upon securitization of the Senior Mortgage Loan (or upon the Agent's demand, subject to availability and cost parameters);
(c) Castleton should obtain indicative quotes for standalone Dunmore IndustriesR terrorism coverage to be presented to the lenders, so that the cost and availability of Dunmore IndustriesR coverage can be factored into the insurance budget and the Loan document negotiations; and
(d) The Mezzanine Term Sheet should be reviewed to confirm whether Granite Peak independently requires Dunmore IndustriesR coverage or is satisfied with the Senior Mortgage Loan requirement.
C. Policy Limits
The Loan documents are expected to require that terrorism coverage (whether TRIA-only or inclusive of Dunmore IndustriesR) be provided at the full policy limits — that is, with no sublimit for terrorism — for the builder's risk policy and, upon conversion, the permanent property policy. A terrorism sublimit that is lower than the full policy limit would be unacceptable to both lenders.
For liability policies (CGL, umbrella/excess), TRIA coverage must likewise be provided at the full per-occurrence and aggregate limits of each policy. The terrorism coverage under the liability policies should respond on the same terms and conditions as coverage for non-terrorism claims, without additional retentions or waiting periods.
D. Terrorism Risk Insurance Program Sunset
The current TRIA reauthorization extends the program through December 31, 2027. Given that the construction period is projected to extend through December 15, 2027, with permanent operations commencing thereafter, there is a risk that the TRIA program could expire or be materially modified during the term of the Loans.
The Loan documents should include a covenant requiring the borrower, in the event of the expiration, non-reauthorization, or material modification of the TRIA program, to either:
(a) Procure replacement terrorism coverage providing substantially equivalent protection at commercially reasonable rates; or
(b) If replacement coverage is not available at commercially reasonable rates, promptly notify the lenders and cooperate with the lenders in evaluating the impact of the lapse on the insurance program and the security for the Loans.
We will review the specific language of this covenant in the Loan documents to confirm that it provides adequate protection to the lenders while not imposing an unreasonable burden on the borrower in a market where terrorism coverage may be unavailable or prohibitively expensive.
VII. FLOOD INSURANCE
A. FEMA Flood Zone Determination
The Project Site at 450 West 34th Street, New York, New York (Block 729, Lots 1, 5, 12, and 15) is located in FEMA Flood Zone X, which is designated as an area of minimal flood hazard. A formal flood zone determination certificate (Standard Flood Hazard Determination Form, FEMA Form 086-0-32) is to be obtained by Castleton or by a third-party flood determination service prior to closing. The Zone X designation indicates that the Project Site is located outside both the 100-year (1% annual chance) and 500-year (0.2% annual chance) floodplains as delineated on the current Flood Insurance Rate Map (FIRM) for New York County.
We note, however, that the FIRM for New York City was last updated in connection with FEMA's post-Hurricane Sandy remapping effort, and the preliminary flood maps (which were subject to significant public comment and revision) reflect the evolving understanding of flood risk in the New York metropolitan area. The adopted FIRM panels applicable to the Project Site should be confirmed in the flood zone determination certificate.
B. NFIP vs. Private Market Coverage
Because the Project Site is located in Zone X, the borrower is not required under federal lending regulations (specifically, the National Flood Insurance Reform Act of 1994 and the Biggert-Waters Flood Insurance Reform Act of 2012) to obtain flood insurance through the National Flood Insurance Program (NFIP). Federal regulations require NFIP coverage only for properties located in Special Flood Hazard Areas (SFHAs), which include Zones A and V designations.
However, notwithstanding the Zone X designation, the Senior Term Sheet and the Mezzanine Term Sheet may nonetheless require flood insurance coverage as a contractual matter, independent of the federal regulatory requirement. This is increasingly common in New York City real estate transactions, particularly for projects in western Manhattan proximate to the Hudson River, where the experience of Hurricanes Sandy (2012) and Ida (2021) has heightened awareness of flood risk even in areas that are technically outside the mapped floodplains. The western edge of the Project Site is located approximately 1,200 feet east of the Hudson River shoreline, and portions of the Hudson Yards district were affected by storm surge during Hurricane Sandy.
The Senior Term Sheet addresses flood insurance with the phrase "as required by applicable law or as otherwise determined by Agent in its reasonable discretion." This language gives Ironclad the authority to require flood insurance even in Zone X, and we anticipate that Ironclad will exercise this authority. The Mezzanine Term Sheet incorporates the Senior Mortgage Loan flood insurance requirement by reference.
We recommend that MTDC and Castleton proceed on the assumption that flood insurance will be required by both lenders and that Castleton begin soliciting private market flood quotes immediately.
C. Coverage Limits and Sublimits
If flood insurance is required by the lenders, the minimum coverage amount is expected to be a lender-specified sublimit, rather than full replacement cost. Based on comparable transactions, we anticipate a minimum flood sublimit in the range of $50,000,000, though some lenders require higher limits for projects of this scale. The specific sublimit must be confirmed with Ironclad and Granite Peak.
The maximum coverage available under the NFIP for commercial structures is $500,000, which is grossly inadequate for a project with a total insurable value of $500,000,000 or more. Accordingly, if any flood coverage is procured through the NFIP (e.g., as a base layer), it must be supplemented with private market excess flood coverage to reach the lender-required sublimit.
In practice, given the Zone X designation and the inadequacy of NFIP limits, it is more efficient to place the entire flood coverage requirement through the private market. The private flood insurance market has expanded significantly since Hurricane Sandy, and several carriers offer policies that meet the federal requirements for flood insurance (to the extent applicable) while providing limits and terms that are more suitable for large commercial projects.
Castleton should obtain quotes from at least two or three private flood carriers and present the proposed terms to the lenders for approval. The flood policy should cover the Project during both the construction phase (as part of or in addition to the builder's risk program) and the permanent phase (as part of or in addition to the permanent property policy).
D. Deductible and Waiting Period
The maximum allowable deductible for flood coverage will be specified in the Loan documents. We anticipate a maximum deductible in the range of $250,000 to $500,000, consistent with the deductible levels for other covered perils under the builder's risk and permanent property policies.
A significant practical consideration is the waiting period applicable to flood coverage. Standard NFIP policies are subject to a 30-day waiting period from the date of application to the effective date of coverage (with limited exceptions for loan closings and map revisions). This waiting period could create a gap if NFIP coverage is not applied for well in advance of the closing date. Private market flood policies, by contrast, typically can be bound with immediate inception, which is more readily coordinated with the closing timeline.
Given the target closing date of June 15, 2025, if NFIP coverage is utilized as a base layer, the application must be submitted no later than May 16, 2025 to ensure the 30-day waiting period has elapsed by closing. If private market coverage is utilized for the full limit, immediate inception is available, and the timing constraint is eliminated. We recommend that Castleton coordinate the flood placement timeline to ensure that coverage is in effect as of the closing date without any gap.
VIII. POLLUTION LEGAL LIABILITY INSURANCE
A. Environmental Due Diligence Baseline
The scope and limits of the pollution legal liability ("PLL") insurance required by the lenders will be informed by the results of the environmental due diligence performed on the Project Site. The Phase I Environmental Site Assessment (the "Phase I ESA") was completed on March 20, 2025 by Apex Environmental Consultants, Inc. (Project No. AEC-NY-25-0337), under the supervision of Dr. Lena Kaur, P.E., Project Manager. The Phase I ESA was prepared in accordance with ASTM Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.
As of the date of this memorandum, we have received a draft of the Phase I ESA but are awaiting the finalized report with appendices. Based on our review of the draft, the Phase I ESA identifies the following:
(a) Historical Recognized Environmental Conditions (HRECs). The Phase I ESA identifies two HRECs relating to historical industrial uses of the Project Site and adjacent properties: (i) former dry cleaning operations at a neighboring parcel (Block 729, Lot 20) from approximately 1945 to 1978, with potential tetrachloroethylene (PCE) migration; and (ii) historical use of the Project Site for light manufacturing from 1920 to 1960, with possible soil contamination from petroleum products and solvents. Both HRECs are classified as historical conditions that have been previously investigated and/or remediated to the satisfaction of the New York State Department of Environmental Conservation (NYSDEC), and no further action is currently required.