MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
FROM: Lisa Morrow and Marcus Leung, Calderwood & Harkness LLP
TO: David A. Whitfield, General Counsel, Fairwater Real Estate Investment Trust Naomi T. Sinclair, CFO, Fairwater Real Estate Investment Trust Rachel S. Donahue, SVP, Capital Markets, Fairwater Real Estate Investment Trust
DATE: August 14, 2025
RE: Summary of Material Terms of Bridge Credit Facility Relevant to Permanent Take-Out Refinancing
MATTER NO.: 1036-00001
Calderwood & Harkness LLP 425 Park Avenue New York, NY 10022
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I. Purpose and Scope
The purpose of this memorandum is to summarize the material terms of the existing $240,000,000 senior secured bridge credit facility (the "Bridge Credit Agreement" or the "Bridge Facility") that are directly relevant to the planned permanent take-out financing currently being arranged by Fairwater Real Estate Investment Trust ("Fairwater REIT" or "FREIT") and its operating partnership, Fairwater Operating Partnership, L.P. ("Fairwater OP").
The Bridge Credit Agreement is dated as of June 30, 2025, by and among Fairwater OP, as borrower, Fairwater REIT, as guarantor, Kensington National Bank, N.A. ("KNB"), as administrative agent and lead arranger, and Pinnacle Trust Company, Greystone Commerce Bank, and Redfield Capital Markets, LLC, as syndicate lenders (collectively with KNB, the "Lenders"). Lender's counsel for the Bridge Credit Agreement is Halcourt Briggs & Devlin LLP, with Kenneth R. Delacroix serving as lead partner on the engagement.
Calderwood & Harkness LLP was engaged on August 11, 2025 to represent Fairwater in the negotiation and documentation of permanent take-out financing for the Sun Belt Portfolio. We understand that a term sheet from Clarendon Metropolitan Insurance Company is anticipated on or about August 25, 2025, and that the target closing of the permanent financing is on or before November 28, 2025.
This memorandum focuses specifically on the provisions of the Bridge Credit Agreement that bear directly on the mechanics and feasibility of the refinancing, including: prepayment rights and mechanics, exit fees and the conditions for their waiver, lien release procedures, consent and notice requirements, financial covenants and their current compliance status, events of default that could impact the refinancing timeline, and guaranty provisions that will be affected by the transition to a non-recourse CMBS structure. This memorandum is not intended to serve as a comprehensive summary of all terms and conditions of the Bridge Credit Agreement. Provisions relating to representations and warranties, ordinary course affirmative and negative covenants not directly bearing on the refinancing, indemnification, and administrative agency provisions are addressed only to the extent they intersect with the refinancing analysis.
We note that several companion memoranda are forthcoming and are cross-referenced at appropriate points herein.
II. Overview of Bridge Credit Facility
A. Basic Terms
The principal terms of the Bridge Facility are summarized as follows:
Facility Type: Senior secured bridge credit facility.
Borrower: Fairwater Operating Partnership, L.P., a Delaware limited partnership (EIN 52-2847201). Fairwater OP is the primary operating entity through which Fairwater REIT conducts substantially all of its real estate investment and management activities.
Guarantor: Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (EIN 52-2847193; NYSE: FWTR). The guaranty is structured as a full recourse guaranty by Fairwater REIT of all obligations of the borrower under the Bridge Credit Agreement, discussed in greater detail in Section XI below.
Administrative Agent: Kensington National Bank, N.A., 600 Lexington Avenue, New York, NY 10022. KNB also serves as lead arranger and bookrunner for the Bridge Facility.
Total Commitment: $240,000,000.
Amount Outstanding: $240,000,000. The Bridge Facility was fully funded at closing on June 30, 2025. The facility is structured on an interest-only basis with no scheduled amortization of principal. Accordingly, the full $240,000,000 of principal remains outstanding as of the date of this memorandum.
Purpose: The proceeds of the Bridge Facility were used to fund a portion of the acquisition of the Sun Belt Portfolio from Meridian Sunstone Holdings LLC. The Sun Belt Portfolio consists of 14 multifamily apartment communities comprising approximately 4,200 residential units located across five states (Texas, Georgia, Florida, North Carolina, and Tennessee). The total purchase price for the Sun Belt Portfolio was $385,000,000. The remaining portion of the purchase price was funded by approximately $145,000,000 in cash equity from Fairwater's balance sheet and through the issuance of OP units, representing an equity contribution of approximately 37.66% of the total acquisition cost.
B. Syndicate Composition
The Bridge Facility is held by a four-member lending syndicate. Commitments and pro rata shares are allocated as follows:
As administrative agent, KNB holds the largest share of the facility and will serve as the primary point of contact for payoff coordination. All prepayment notices and payoff requests should be directed to KNB, which will be responsible for distributing payoff funds to the syndicate lenders on a pro rata basis in accordance with their respective commitments.
C. Governing Law
The Bridge Credit Agreement is governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts-of-law principles that would require the application of the laws of another jurisdiction. The parties have consented to the exclusive jurisdiction of the federal and state courts located in the Borough of Manhattan, City of New York, and have waived trial by jury.
III. Interest Rate
A. Applicable Rate
The Bridge Facility bears interest at a floating rate equal to 30-day Term SOFR plus 500 basis points (5.00%). The Bridge Credit Agreement incorporates a SOFR floor of 3.00%, meaning that for purposes of calculating interest, Term SOFR is deemed to be no less than 3.00% regardless of the actual prevailing rate.
Based on the 30-day Term SOFR rate as of August 11, 2025, which we have assumed at 4.33% for purposes of this memorandum, the current all-in interest rate on the Bridge Facility is 9.33% (4.33% Term SOFR + 5.00% spread). Because the current Term SOFR rate of 4.33% exceeds the 3.00% floor, the floor provision is not currently operative. The floor would become relevant only if 30-day Term SOFR were to decline below 3.00%, in which case interest would be calculated at a minimum rate of 8.00% (3.00% floor + 5.00% spread).
B. Interest Cost
At the current all-in rate of 9.33%, the annual interest expense on the fully drawn Bridge Facility is approximately $22,392,000. On a monthly basis, calculated on a 30/360 day-count convention, this translates to approximately $1,866,000 per month.
Because the Bridge Facility is structured on an interest-only basis with no scheduled amortization of principal, the full $22,392,000 annual figure represents the borrower's total debt service obligation under the Bridge Credit Agreement. There are no scheduled principal reduction payments prior to the maturity date. This interest-only structure is typical for bridge financing arrangements and was designed to preserve borrower cash flow during the interim period between acquisition closing and permanent financing.
C. Default Rate
The Bridge Credit Agreement provides for a default interest rate premium of an additional 200 basis points over the otherwise applicable contract rate. Upon the occurrence and during the continuance of any Event of Default, all outstanding principal and, to the extent permitted by applicable law, overdue interest and fees would bear interest at the default rate. At current Term SOFR levels, the default rate would be SOFR plus 700 basis points, or approximately 11.33% (4.33% + 7.00%).
This provision underscores the financial urgency of effecting a timely payoff of the Bridge Facility prior to the occurrence of any potential default event. The additional 200 basis points of default interest would add approximately $4,800,000 in annualized interest cost and would substantially diminish any savings otherwise achievable through the refinancing.
IV. Maturity and Extension
A. Initial Maturity
The stated maturity date of the Bridge Facility is December 31, 2025, which is six months from the bridge closing date of June 30, 2025. On the maturity date, all outstanding principal, together with all accrued and unpaid interest, fees (including the exit fee, if applicable), and any other obligations owing under the Bridge Credit Agreement, become immediately due and payable.
This maturity date is of central importance to the refinancing timeline. As of the date of this memorandum (August 14, 2025), there are approximately four and one-half months remaining until the hard maturity deadline. The target closing date for the permanent loan from Clarendon Metropolitan Insurance Company is November 28, 2025, which would leave a cushion of approximately 33 calendar days before the bridge maturity date. While this cushion provides a reasonable margin, the complexity of a simultaneous closing involving 14 properties across five states — including lien releases, new mortgage recordings, UCC termination and filing coordination, and title insurance matters — warrants careful scheduling and proactive engagement with all parties well in advance of the closing date.
B. Extension Option
The Bridge Credit Agreement provides the borrower with one extension option, which, if validly exercised, would extend the maturity date by six months to June 30, 2026. The extension option is not automatic and is subject to several conditions precedent, all of which must be satisfied on both the date the extension request is delivered and on the original maturity date:
(a) No Event of Default. No Event of Default shall have occurred and be continuing at the time the extension request is delivered or on the original maturity date of December 31, 2025.
(b) Portfolio LTV. The Portfolio loan-to-value ratio must not exceed 65% as of the date the extension request is made. Based on the current outstanding principal of $240,000,000 and the acquisition purchase price / appraised value of $385,000,000, the Portfolio LTV is currently approximately 62.34%, which is within the required threshold.
(c) Portfolio DSCR. The Portfolio debt service coverage ratio must be at least 1.20x as of the date of the extension request. This is a critical point of concern. The 1.20x DSCR threshold for the extension option is higher than the ongoing Portfolio DSCR covenant of 1.10x (discussed in Section IX below). Based on current trailing-twelve-month portfolio net operating income of $26,180,000 and annual debt service of $22,392,000, the current Portfolio DSCR is approximately 1.169x. This level satisfies the ongoing covenant requirement of 1.10x but does not satisfy the 1.20x extension condition. To meet the 1.20x extension threshold at current debt service levels, Portfolio NOI would need to increase to approximately $26,870,400 — an increase of approximately $690,400, or roughly 2.6%, from current levels. Alternatively, a partial principal paydown reducing the outstanding balance to approximately $218,167,000 or below would reduce annual debt service sufficiently to bring the DSCR above 1.20x at current NOI levels.
(d) Extension Fee. The borrower must pay an extension fee equal to 25 basis points of the then-outstanding principal balance. At current outstanding principal of $240,000,000, the extension fee would be $600,000.
The borrower must deliver its extension request in writing to the Administrative Agent no later than 30 days prior to the original maturity date, i.e., by December 1, 2025.
Practical Implication: The extension option is available as a backstop in the event the permanent financing closing is delayed beyond December 31, 2025. However, the DSCR gap between the current 1.169x level and the required 1.20x extension threshold presents a material risk. If the permanent loan closing is delayed and the extension is needed, Fairwater would need to achieve either (i) sufficient NOI growth in the Sun Belt Portfolio over the coming months to bring the DSCR to 1.20x or above, or (ii) a partial principal paydown sufficient to reduce debt service to a level at which the 1.20x DSCR threshold is achieved. A separate contingency analysis memorandum addressing the extension option in greater detail, including sensitivity analyses for various NOI and interest rate scenarios, is forthcoming from Calderwood & Harkness.
V. Fees
A. Origination Fee
The Bridge Credit Agreement required the payment at closing of an origination fee equal to 1.00% of the total commitment amount, or $2,400,000 ($240,000,000 × 1.00%). This fee was paid in full on the bridge closing date of June 30, 2025, is fully earned, and is non-refundable. The origination fee is not directly relevant to the refinancing analysis except insofar as it represents a sunk cost that Fairwater will not recover upon payoff of the Bridge Facility.
B. Exit Fee
The Bridge Credit Agreement imposes an exit fee equal to 0.50% of the outstanding principal balance at the time of repayment. Based on the current outstanding balance of $240,000,000, the exit fee would be $1,200,000 ($240,000,000 × 0.50%).
Exit Fee Waiver Provision. The Bridge Credit Agreement contains a waiver provision under which the exit fee is waived in its entirety if the Bridge Facility is repaid in full from the proceeds of "permanent CMBS financing" within nine months of the bridge closing date, i.e., by March 31, 2026. The Bridge Credit Agreement defines "permanent CMBS financing" as a fixed-rate, non-recourse (or limited-recourse) mortgage loan secured by the Sun Belt Portfolio properties, originated by an institutional lender for contribution to a commercial mortgage-backed securities (CMBS) securitization trust.
The proposed permanent loan from Clarendon Metropolitan Insurance Company is expected to be structured as a fixed-rate, non-recourse mortgage loan with limited recourse carve-out guaranties, secured by the Sun Belt Portfolio properties. Although Clarendon Metropolitan is an insurance company lender rather than a conduit lender, many insurance company loans are originated with an intent to contribute the loans to CMBS trusts or other securitization vehicles. Calderwood & Harkness will review the proposed Clarendon Metropolitan term sheet and permanent loan documentation upon receipt to confirm that the structure satisfies the Bridge Credit Agreement's definition of "permanent CMBS financing" for purposes of the exit fee waiver. If the proposed structure does not precisely fit within the defined term, we will explore whether a clarifying amendment or waiver from the Administrative Agent may be available, or whether the transaction can be structured in a manner that satisfies the definition.
Practical Implication: The target closing date of November 28, 2025 is well within the March 31, 2026 exit fee waiver deadline. If the permanent financing closes on or before March 31, 2026, the $1,200,000 exit fee will be waived entirely, representing a meaningful cost saving. Conversely, if the permanent financing closing is delayed beyond March 31, 2026 — which could occur if the extension option is exercised and closing occurs in the extended maturity period — the full $1,200,000 exit fee would become payable. This cost consideration reinforces the importance of closing the permanent financing on the targeted timeline.
C. Extension Fee
As noted in Section IV.B above, the extension option requires the payment of an extension fee equal to 25 basis points on the outstanding principal balance, or $600,000 at current levels ($240,000,000 × 0.25%). This fee is payable only if the extension option is exercised and is entirely avoidable if the permanent loan closes on or before the original maturity date of December 31, 2025. We include it here for completeness, as it represents an additional cost that would be incurred in a delayed closing scenario.
VI. Prepayment Provisions
A. Voluntary Prepayment
The Bridge Credit Agreement provides the borrower with the right to prepay the Bridge Facility, in whole or in part, at any time and from time to time, without the imposition of any prepayment premium or penalty. The only charges associated with a voluntary prepayment are (i) the exit fee discussed in Section V.B above (which, as noted, is subject to waiver if the applicable conditions are satisfied) and (ii) customary SOFR breakage costs, as described in Section VI.C below.
To effect a voluntary prepayment, the borrower must deliver prior written notice to the Administrative Agent not less than five (5) business days before the intended prepayment date. The notice must specify the proposed prepayment date and the amount to be prepaid. Calderwood & Harkness will prepare and deliver the prepayment notice on behalf of Fairwater OP in coordination with the permanent loan closing.
Prepayment in Full. A prepayment in full requires the payment of all outstanding principal ($240,000,000), together with all accrued and unpaid interest through and including the payoff date, the exit fee (if applicable and not waived), and any other amounts then owing under the Bridge Credit Agreement, including any SOFR breakage costs, unreimbursed expenses, and indemnification amounts that have been invoiced.
Partial Prepayments. The Bridge Credit Agreement also permits partial voluntary prepayments, subject to a minimum prepayment amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof. Partial prepayments are applied to the syndicate lenders on a pro rata basis in accordance with their respective commitment percentages. Partial prepayments could potentially be utilized as part of a contingency strategy to reduce the outstanding balance and improve the Portfolio DSCR in connection with an extension request, although a full payoff through permanent financing remains the primary objective.
B. Mandatory Prepayment
The Bridge Credit Agreement contains mandatory prepayment provisions that require the application of certain proceeds to reduce the outstanding bridge balance. These triggers include:
(i) Asset Dispositions. Upon the sale, transfer, or other disposition of any collateral property or any equity interest in any SPE property-owning subsidiary, the net cash proceeds of such disposition must be applied to prepay the Bridge Facility. This provision would not be triggered by the proposed refinancing, as the permanent loan involves a refinancing of existing indebtedness rather than a sale or disposition of collateral.
(ii) Casualty and Condemnation Events. Upon the occurrence of a casualty or condemnation event affecting any collateral property in which the net proceeds exceed $2,000,000, such net proceeds are required to be applied to prepay the Bridge Facility, unless the borrower elects to apply the proceeds to the restoration or rebuilding of the affected property, subject to satisfaction of specified conditions (including completion of restoration within a specified timeframe and maintenance of required insurance coverage during the restoration period).
(iii) Prohibited Debt Issuances. The net cash proceeds of the incurrence of certain indebtedness that is not expressly permitted under the Bridge Credit Agreement's negative covenants must be applied to prepay the Bridge Facility.
None of these mandatory prepayment triggers is expected to be implicated in connection with the proposed permanent take-out refinancing. The refinancing transaction involves the payoff and replacement of the bridge indebtedness with permanent mortgage financing secured by the same collateral portfolio; it does not involve property sales, casualty events, or the incurrence of prohibited indebtedness.
C. SOFR Breakage Costs
The Bridge Credit Agreement includes a customary SOFR breakage indemnity provision requiring the borrower to compensate the Lenders for any loss, cost, or expense (including any loss of margin or anticipated profit) incurred as a result of a prepayment occurring on a date other than the last day of the applicable Interest Period. The Bridge Facility provides for Interest Periods of one (1) month in duration.
To minimize or avoid SOFR breakage costs, we recommend coordinating the permanent loan closing and bridge payoff date to coincide with the end of an Interest Period under the Bridge Facility. Calderwood & Harkness will confirm the scheduled Interest Period end dates with KNB when we request the payoff statement and will endeavor to align the permanent loan closing date accordingly. If alignment is not achievable due to scheduling constraints or other considerations, the breakage costs should be quantified and factored into the overall refinancing cost analysis. In current market conditions, breakage costs for a one-month SOFR interest period are generally modest, but they should nonetheless be confirmed in advance.
VII. Consent and Notice Requirements for Refinancing
A. No Consent Required for Refinancing
We have reviewed the Bridge Credit Agreement and confirm that no consent from the Administrative Agent or any Lender is required for the borrower to arrange, negotiate, or close permanent take-out financing. The borrower retains the unrestricted right to arrange and close permanent financing secured by the Sun Belt Portfolio properties, provided that the Bridge Facility is simultaneously repaid in full and all liens of the Lenders are released upon receipt of payoff funds. The borrower need only comply with the prepayment mechanics set forth in Section VI above in order to effect the payoff.
This is consistent with the intended nature of the Bridge Facility as short-term transitional financing designed to be replaced by permanent capital. There are no provisions in the Bridge Credit Agreement that would give the Lenders a right of first refusal, matching right, or any other preferential right with respect to the permanent financing.
B. Notice Requirements
As discussed above, the borrower is required to provide at least five (5) business days' prior written notice to the Administrative Agent before making a voluntary prepayment. This notice requirement is straightforward and should not present any impediment to the closing of the permanent financing.
In addition to the formal notice required under the Bridge Credit Agreement, we recommend providing informal advance notice to KNB well in advance of the anticipated closing date. Specifically, we suggest contacting Thomas J. Pagano, Managing Director, Real Estate Finance at KNB to advise him of the anticipated refinancing timeline and to begin discussions regarding the coordination of payoff logistics, lien release documentation, and UCC termination filings. Early engagement with KNB will help ensure that the necessary release documents are prepared, reviewed, and ready for execution on or before the closing date, avoiding last-minute delays.
We further recommend that Fairwater initiate early contact with Halcourt Briggs & Devlin LLP (Kenneth R. Delacroix), the Lenders' counsel, to begin the process of preparing release documentation. Given the complexity of coordinating mortgage satisfactions and releases in five states and UCC-3 termination statements in multiple jurisdictions, advance preparation of these documents will be essential to achieving a smooth simultaneous closing.
C. Required Lender Approvals for Collateral Modifications
The Bridge Credit Agreement does not contain individual property release provisions. No release of any collateral property or any portion of the security package is permitted unless and until the Bridge Facility has been repaid in full. This is a common structural feature in portfolio-level bridge financing and reflects the Lenders' insistence on maintaining a cross-collateralized security pool throughout the life of the Bridge Facility.
For purposes of the proposed refinancing, the absence of partial release mechanics is not problematic. The permanent loan will be in an amount sufficient to pay off the Bridge Facility in full, and the full payoff will trigger the release of all collateral, liens, and security interests held by the Lenders under the Bridge Credit Agreement. No partial release analysis is necessary.
Upon receipt of payoff funds in full, the Administrative Agent is required to deliver all lien release documentation within ten (10) business days, or such shorter period as may be required to enable the simultaneous closing of the permanent financing. In practice, for a simultaneous closing, the release documents will need to be prepared, executed, and held in escrow in advance, with delivery and recording to occur simultaneously with or immediately following the funding of the permanent loan and the application of payoff proceeds. Calderwood & Harkness will coordinate with all parties to establish the appropriate closing mechanics, including escrow arrangements with the title insurer.
VIII. Collateral and Security
A. Collateral Description
The Bridge Facility is secured by a comprehensive collateral package consisting of the following:
(i) Mortgage Liens. First-priority mortgage liens (deeds of trust in applicable jurisdictions) on all 14 Sun Belt Portfolio properties, encumbering both the real property and associated improvements in each case. The properties are located across five states: Texas, Georgia, Florida, North Carolina, and Tennessee. Mortgage instruments have been recorded in each county in which the properties are situated.
(ii) Equity Pledge. A pledge of 100% of the limited liability company membership interests in each of the 14 SPE property-owning subsidiaries: Fairwater Sun Belt I LLC, Fairwater Sun Belt II LLC, Fairwater Sun Belt III LLC, Fairwater Sun Belt IV LLC, Fairwater Sun Belt V LLC, Fairwater Sun Belt VI LLC, Fairwater Sun Belt VII LLC, Fairwater Sun Belt VIII LLC, Fairwater Sun Belt IX LLC, Fairwater Sun Belt X LLC, Fairwater Sun Belt XI LLC, Fairwater Sun Belt XII LLC, Fairwater Sun Belt XIII LLC, and Fairwater Sun Belt XIV LLC. Each of these entities is a Delaware limited liability company and is a direct or indirect subsidiary of Fairwater OP. UCC-1 financing statements reflecting the equity pledges have been filed with the Delaware Secretary of State.
(iii) Assignment of Leases and Rents. Assignments of leases, rents, and profits with respect to all 14 properties, providing the Lenders with a security interest in and the right, upon an Event of Default, to collect all rental income generated by the properties.
(iv) Assignment of Property Management Agreements. An assignment of the property management agreements for each property. The Sun Belt Portfolio properties are managed by Fairwater Residential Management LLC, an affiliate of Fairwater REIT, pursuant to management agreements effective July 1, 2025.
(v) Personal Property and Fixtures. A security interest in all tangible personal property, equipment, and fixtures located at each of the 14 properties. UCC-1 fixture filings have been made in each county in which a property is located.
B. Lien Release Mechanics
Upon repayment in full of all outstanding obligations under the Bridge Credit Agreement, the Administrative Agent is obligated to execute and deliver the following release documentation:
(i) Mortgage Satisfactions and Releases. Satisfactions or releases of mortgages (or deeds of reconveyance, as applicable by jurisdiction) for recording in each county in Texas, Georgia, Florida, North Carolina, and Tennessee in which a mortgage has been recorded.
(ii) UCC-3 Termination Statements. UCC-3 termination statements for all UCC-1 financing statements filed in connection with the Bridge Facility, including (a) equity pledge financing statements filed with the Delaware Secretary of State for each of the 14 SPE property-owning LLCs, and (b) fixture filings recorded in each county in which a property is located.
(iii) Return of Pledged Equity Interests. Delivery of original pledged equity interest certificates for each SPE property-owning LLC, or, if the interests are uncertificated, written acknowledgments of the release and termination of the equity pledge.
(iv) Other Release Instruments. Execution and delivery of such other instruments, documents, or agreements as the borrower may reasonably request to evidence the release and termination of all liens, security interests, and encumbrances granted in connection with the Bridge Credit Agreement.
The Administrative Agent and the Lenders are under no obligation to deliver any release documents until the payoff funds have been received by the Administrative Agent and have cleared in accordance with the Administrative Agent's standard processing requirements. For purposes of a simultaneous closing, Calderwood & Harkness will work with KNB and Halcourt Briggs & Devlin LLP to arrange for the pre-execution of release documents to be held in escrow, with release to the borrower (or directly to the title company) upon confirmation of the receipt and clearance of payoff funds.
Practical Note Regarding Scope of Release Documentation. The breadth of the collateral package — 14 properties across 5 states — means that the lien release process will require the preparation, execution, and recording of approximately 14 mortgage satisfactions or releases, approximately 14 fixture filing UCC-3 termination statements (one per property county), and approximately 14 equity pledge UCC-3 termination statements (all filed in Delaware). In total, this will involve coordination with county recording offices in multiple jurisdictions and will require significant lead time. We strongly recommend initiating discussions with Halcourt Briggs & Devlin LLP no later than mid-September 2025 to ensure that all release documentation is in final form well in advance of the anticipated November 28, 2025 closing date.
C. Simultaneous Closing Coordination
The closing of the permanent loan from Clarendon Metropolitan Insurance Company will be structured as a simultaneous closing, with the following transactions occurring substantially contemporaneously:
(a) Funding of the permanent loan by Clarendon Metropolitan Insurance Company;
(b) Application of permanent loan proceeds to pay off the Bridge Facility in full;
(c) Release and recording of bridge lien satisfactions and releases in all applicable jurisdictions;
(d) Recording of new mortgage instruments (or deeds of trust) in favor of Clarendon Metropolitan Insurance Company (or its designee) in all applicable jurisdictions; and
(e) Filing of new UCC-1 financing statements and UCC-3 termination statements as necessary.
The title insurer for the permanent loan, Marlowe Asset Management Title Insurance Group, Inc., will need to provide gap coverage or establish escrow arrangements to bridge the interval between the release of the existing bridge liens and the recording of the new permanent loan mortgages. In jurisdictions that utilize a recording system (as opposed to a registration system), there will necessarily be a brief period during which the bridge liens have been satisfied but the new permanent loan mortgages have not yet been recorded. During this gap, the properties will be temporarily unencumbered, and the title insurer will need to provide assurance to Clarendon Metropolitan that the new mortgages will be recorded and will constitute valid first-priority liens.
Calderwood & Harkness will be responsible for coordinating with the following parties in connection with the simultaneous closing:
• Halcourt Briggs & Devlin LLP (Kenneth R. Delacroix) — bridge lien releases, mortgage satisfactions, UCC-3 termination statements, and return of pledged equity interests;
• Ashworth McPhail LLP — Clarendon Metropolitan's outside counsel for the permanent loan, responsible for preparing and recording the new mortgage instruments, assignments of leases and rents, and UCC-1 financing statements;
• Marlowe Asset Management Title Insurance Group, Inc. — title insurance for the permanent loan, including gap coverage, title searches, and coordination of recording in all applicable jurisdictions.
A detailed closing coordination timeline and checklist will be prepared by Calderwood & Harkness once the permanent loan documentation process is underway.
IX. Financial Covenants
A. Entity-Level Covenants (Tested on Fairwater REIT Consolidated Basis)
The Bridge Credit Agreement imposes several financial maintenance covenants that are tested at the Fairwater REIT consolidated level. These covenants are tested quarterly, based on Fairwater REIT's consolidated financial statements, with compliance certificates required to be delivered within 45 days following the end of each fiscal quarter (and within 60 days following the end of each fiscal year). The entity-level covenants are summarized in the table below:
We note that the current compliance status of the entity-level covenants has not yet been independently verified by Calderwood & Harkness. We request that the Fairwater finance team, led by Naomi T. Sinclair, confirm the current status of compliance with each of these covenants and provide us with a copy of the most recent compliance certificate delivered to the Administrative Agent. Continued compliance with these covenants is essential throughout the period leading to the permanent loan closing, as a breach of any entity-level covenant would constitute an Event of Default under the Bridge Credit Agreement and would have the following adverse consequences:
(a) The extension option would become unavailable, as no Event of Default may be continuing at the time of an extension request or on the original maturity date;
(b) The Administrative Agent could accelerate all amounts outstanding under the Bridge Facility;
(c) A default under the Bridge Credit Agreement could trigger cross-default provisions in other Fairwater indebtedness, potentially causing a cascade of defaults across the Fairwater REIT capital structure; and
(d) A default environment would likely impair Fairwater's ability to close the permanent financing, as Clarendon Metropolitan would be expected to require a "no default" representation in the permanent loan documents.
B. Portfolio-Level Covenants (Tested on Sun Belt Portfolio)
In addition to the entity-level covenants, the Bridge Credit Agreement imposes portfolio-level financial covenants that are tested based on the performance of the Sun Belt Portfolio specifically. These covenants are summarized below:
Portfolio NOI. The Portfolio DSCR is calculated using trailing-twelve-month net operating income. As of the most recent testing date of June 30, 2025, trailing-twelve-month portfolio NOI for the Sun Belt Portfolio was $26,180,000. This figure incorporates the pre-acquisition operating performance of the 14 multifamily communities as reported by the prior owner, Meridian Sunstone Holdings LLC, and adjusted for any post-acquisition changes to the extent reflected in the trailing-twelve-month period.
Portfolio Debt Service. The annual debt service for the Bridge Facility is $22,392,000, consisting entirely of interest payments at the current all-in rate of 9.33%. Because the Bridge Facility is interest-only with no scheduled amortization, there is no principal component in the debt service calculation.
DSCR Analysis and Extension Gap. As noted in Section IV.B above, the current Portfolio DSCR of 1.169x satisfies the ongoing portfolio-level covenant of 1.10x but does not satisfy the 1.20x DSCR threshold required as a condition to the exercise of the extension option. This represents a gap of approximately 0.031x, equivalent to approximately $690,400 in additional NOI (at constant debt service levels) or a principal reduction of approximately $21,833,000 (to approximately $218,167,000). The implications of this gap are analyzed in a separate bridge extension contingency memorandum to be issued by Calderwood & Harkness.
C. Reporting Obligations
The Bridge Credit Agreement imposes ongoing reporting obligations on the borrower and guarantor, including the following:
• Quarterly Compliance Certificates. A compliance certificate signed by the CFO of Fairwater REIT (Naomi T. Sinclair) demonstrating compliance with all financial maintenance covenants, to be delivered within 45 days following the end of each fiscal quarter;
• Annual Audited Financial Statements. Audited consolidated financial statements of Fairwater REIT, prepared in accordance with GAAP and audited by Fairwater's independent registered public accounting firm (Whitmore Hargrove & Co., P.C.; lead engagement partner Christine M. Rowley), to be delivered within 60 days following the end of each fiscal year;
• Quarterly Property-Level Operating Statements. Quarterly operating statements for each of the 14 Sun Belt Portfolio properties, including revenue, expense, and NOI detail, to be delivered within 45 days following the end of each fiscal quarter;
• Annual Property Appraisals. Annual appraisals of the Sun Belt Portfolio properties, but only if requested by the Administrative Agent on a reasonable basis (the Administrative Agent has not exercised this right to date).
All reporting obligations remain in full force and effect until the Bridge Facility is repaid in full. Fairwater must continue to comply with all reporting covenants through the permanent loan closing date and until the payoff funds have been received and cleared. Any failure to deliver a required report or compliance certificate within the specified timeframe could give rise to a covenant default under the Bridge Credit Agreement.
X. Events of Default — Provisions Relevant to Refinancing Timeline
A. Key Default Triggers
The Bridge Credit Agreement contains customary Events of Default, including the following provisions that are most directly relevant to the refinancing timeline:
• Payment Default. Failure to pay interest when due, subject to a five (5) business day grace period. Failure to pay principal at maturity — no grace period. A failure to repay the full outstanding principal balance on the maturity date of December 31, 2025 (or, if extended, June 30, 2026) would constitute an immediate Event of Default.
• Financial Covenant Default. Failure to comply with any entity-level financial maintenance covenant, subject to a thirty (30) calendar day cure period following delivery of the applicable compliance certificate or notice from the Administrative Agent. Failure to comply with any portfolio-level financial covenant — no cure period. The absence of a cure period for portfolio-level covenant breaches means that a decline in Portfolio DSCR below the 1.10x threshold or an increase in Portfolio LTV above the 65% threshold would constitute an immediate Event of Default.
• Cross-Default. A cross-default provision is triggered upon the occurrence of a default or event of default under any other indebtedness of Fairwater OP, Fairwater REIT, or any material subsidiary, where the aggregate principal amount of such other indebtedness exceeds $10,000,000. This provision creates the risk that a default under any of Fairwater's other credit facilities or debt instruments could cascade into a default under the Bridge Credit Agreement.
• Change of Control. A change of control event, as defined in the Bridge Credit Agreement, would constitute an Event of Default. This provision is not expected to be triggered by the refinancing, as the permanent loan does not involve any change in the ownership or control of Fairwater REIT, Fairwater OP, or the SPE property-owning subsidiaries.
• Bankruptcy Events. The commencement of bankruptcy, insolvency, reorganization, or similar proceedings by or against the borrower, the guarantor, or any material subsidiary would constitute an Event of Default.
B. Consequences of Default
Upon the occurrence of an Event of Default under the Bridge Credit Agreement, the Administrative Agent (acting at the direction of the Required Lenders, defined as Lenders holding more than 50% of the outstanding commitments) would have the right, among other things, to:
• Declare all outstanding principal, accrued interest, fees, and other obligations immediately due and payable (acceleration);
• Impose the default interest rate of an additional 200 basis points over the contract rate (currently resulting in an all-in rate of approximately 11.33%);
• Exercise remedies under the mortgage instruments, including the commencement of foreclosure proceedings against the Sun Belt Portfolio properties;
• Exercise remedies under the equity pledge agreement, including the right to foreclose on or otherwise dispose of the pledged membership interests in the SPE property-owning subsidiaries;
• Exercise any other rights and remedies available under the Bridge Credit Agreement, the other loan documents, or applicable law; and
• As noted above, the extension option would become unavailable, as no Event of Default may be continuing at the time of extension.
Practical Note: The occurrence of any Event of Default prior to the closing of the permanent loan would severely complicate, and likely preclude, the refinancing. In addition to the direct consequences described above, an Event of Default under the Bridge Facility would be expected to trigger the cross-default provision, potentially cascading to defaults under Fairwater's other credit facilities. Furthermore, Clarendon Metropolitan Insurance Company, as the prospective permanent lender, would be expected to require representations and warranties confirming the absence of any defaults under Fairwater's existing indebtedness as a condition to closing the permanent loan. Any existing or continuing default under the Bridge Facility would almost certainly cause Clarendon Metropolitan to decline to close the permanent loan.
Accordingly, Fairwater must exercise the utmost diligence in ensuring strict compliance with all covenants, obligations, and conditions of the Bridge Credit Agreement through the permanent loan closing date. The finance team should monitor all compliance deadlines, reporting obligations, and financial covenant thresholds on an ongoing basis.
XI. Guaranty Provisions
The Bridge Credit Agreement is supported by a full recourse guaranty (the "Guaranty") delivered by Fairwater REIT guaranteeing the complete and punctual payment and performance of all obligations of Fairwater OP under the Bridge Credit Agreement and the other loan documents. The Guaranty is unconditional and irrevocable and includes standard waivers of suretyship defenses, including waivers of the rights of marshaling, presentment, demand, protest, notice of dishonor, and any defense arising by reason of any extension, modification, or release of collateral.
The Guaranty terminates automatically upon the indefeasible payment in full of all obligations under the Bridge Credit Agreement. Upon payoff of the Bridge Facility in connection with the permanent loan closing, Fairwater REIT's guaranty obligations will be released, and the Guaranty will terminate.
Relevance to Refinancing. The transition from the Bridge Facility to the proposed permanent CMBS loan represents a significant change in Fairwater REIT's credit exposure. Under the current Bridge Facility, Fairwater REIT bears full recourse liability for the entire $240,000,000 outstanding principal amount and all related obligations. Under the proposed Clarendon Metropolitan permanent loan, the financing is expected to be structured as non-recourse to Fairwater REIT, with only limited recourse carve-out guaranties for customary "bad boy" acts (such as fraud, intentional waste, misappropriation of funds, and voluntary bankruptcy filings). This shift from full recourse to non-recourse with limited carve-out guaranties will materially reduce Fairwater REIT's contingent liability exposure and is one of the key financial benefits of the permanent take-out refinancing, in addition to the interest rate savings and maturity extension discussed elsewhere in this memorandum.
XII. Provisions Regarding SPE Borrower Structure for Permanent Financing
The Bridge Facility was made to Fairwater Operating Partnership, L.P. as the single consolidated borrower. However, the proposed permanent CMBS loan from Clarendon Metropolitan Insurance Company will require a different borrower structure. Specifically, the 14 SPE property-owning limited liability companies — Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC — are expected to serve as co-borrowers under the permanent loan, reflecting the bankruptcy-remote, special-purpose entity structure that is standard for CMBS financing.
We have reviewed the Bridge Credit Agreement's negative covenants and confirm the following:
• The Bridge Credit Agreement does not restrict the borrower's subsidiaries (including the 14 SPE property-owning LLCs) from entering into new financing arrangements, provided that the Bridge Facility is simultaneously repaid in full and all liens securing the Bridge Facility are simultaneously released.
• There is no prohibition on the SPE property-owning LLCs granting new mortgage liens or security interests in favor of a new permanent lender, provided that the existing bridge liens are simultaneously released upon repayment in full.
However, we flag one area requiring further analysis. The Bridge Credit Agreement contains a negative pledge covenant that restricts the creation or existence of liens on any collateral during the term of the Bridge Facility. It will be important to confirm that this negative pledge covenant is not technically violated during the gap period — if any — between the execution and delivery of the permanent loan documents (including the new mortgages and security instruments) and the actual funding of the permanent loan and payoff of the Bridge Facility. In a simultaneous closing structure, these events are intended to occur virtually contemporaneously, but the precise sequencing of document execution, fund transfers, and recording may create a brief window during which new loan documents have been executed but the bridge payoff has not yet been received and applied.
Calderwood & Harkness will analyze the sequencing mechanics in detail and, if necessary, will obtain a waiver or acknowledgment from the Administrative Agent confirming that the simultaneous closing structure does not constitute a violation of the negative pledge covenant during any such gap period. This is typically a technical issue that can be addressed through appropriate closing mechanics and escrow arrangements, but it warrants attention to avoid any claim of a covenant breach.
XIII. Summary of Key Financial Metrics — Bridge vs. Proposed Permanent Financing
The following table provides a side-by-side comparison of the key financial terms of the existing Bridge Facility and the proposed permanent CMBS loan from Clarendon Metropolitan Insurance Company, based on the terms anticipated in the forthcoming term sheet:
The proposed permanent financing represents a materially improved capital structure for the Sun Belt Portfolio across virtually every dimension. The annual interest savings of approximately $7,392,000 will significantly enhance portfolio-level cash flow and net asset value. The shift to a non-recourse structure eliminates Fairwater REIT's full recourse liability exposure. The 10-year fixed-rate maturity provides long-term rate certainty and eliminates the floating-rate interest rate risk currently borne under the bridge. The improvement in Portfolio DSCR from 1.169x to 1.476x provides substantial coverage cushion and enhances the overall credit profile of the portfolio.
These financial benefits underscore the importance of executing the refinancing on a timely basis and within the parameters that preserve the exit fee waiver and avoid the need for an extension of the Bridge Facility.
XIV. Action Items and Recommendations
A. Immediate Actions
Based on our review of the Bridge Credit Agreement, we recommend the following immediate action items:
1. Request Payoff Statement. Calderwood & Harkness will prepare a payoff request letter addressed to Kensington National Bank, N.A. (attention: Thomas J. Pagano, Managing Director, Real Estate Finance) requesting a formal payoff statement for the Bridge Facility. A draft of this letter will be circulated separately for client review and execution. The payoff statement should be requested sufficiently in advance of the anticipated closing date to allow for review and verification of all payoff amounts.
2. Confirm Interest Period End Dates. In connection with the payoff request, Calderwood & Harkness will request confirmation of the scheduled Interest Period end dates under the Bridge Facility. Aligning the permanent loan closing and bridge payoff with the end of an Interest Period will minimize or eliminate SOFR breakage costs.
3. Engage Lender's Counsel on Release Documentation. Fairwater should authorize Calderwood & Harkness to contact Halcourt Briggs & Devlin LLP (Kenneth R. Delacroix) to initiate discussions regarding the preparation of lien release and UCC-3 termination documentation. Given the scope of the collateral package — 14 properties across 5 states, with corresponding mortgage releases, fixture filing UCC-3 terminations, and equity pledge UCC-3 terminations — early engagement is essential to avoid delays at closing. We recommend initiating this engagement no later than mid-September 2025.
4. Confirm Entity-Level Covenant Compliance. We request that Naomi T. Sinclair and the Fairwater finance team confirm the current status of compliance with all entity-level financial covenants under the Bridge Credit Agreement (consolidated leverage ratio, consolidated fixed charge coverage ratio, tangible net worth, and minimum liquidity) and provide Calderwood & Harkness with a copy of the most recent quarterly compliance certificate. Continued compliance must be maintained through the permanent loan closing date.
5. Monitor Portfolio NOI and DSCR Trends. The current Portfolio DSCR of 1.169x satisfies the ongoing 1.10x covenant but falls short of the 1.20x extension threshold. While the primary plan is to close the permanent financing prior to the bridge maturity date (and thus avoid any need to exercise the extension option), Fairwater should closely monitor portfolio NOI trends in the event that a fallback to the extension option becomes necessary. If the permanent loan closing is delayed, a partial paydown of bridge principal or NOI improvement would be required to meet the 1.20x DSCR extension condition.
B. Coordination with Permanent Financing Process
6. Confirm Exit Fee Waiver Qualification. Upon receipt of the Clarendon Metropolitan term sheet and draft permanent loan documents, Calderwood & Harkness will review the proposed structure to confirm that it meets the Bridge Credit Agreement's definition of "permanent CMBS financing" for purposes of the $1,200,000 exit fee waiver. If there is any question regarding qualification, we will pursue a clarifying amendment or waiver from KNB.
7. Coordinate Simultaneous Closing Logistics. Calderwood & Harkness will coordinate the simultaneous closing mechanics, including: (a) bridge payoff and receipt of payoff funds by KNB; (b) execution and delivery of lien releases and UCC-3 termination statements by Halcourt Briggs & Devlin LLP; (c) recording of new mortgage instruments and filing of new UCC-1 financing statements by Ashworth McPhail LLP (Clarendon Metropolitan's counsel); and (d) title insurance gap coverage and escrow arrangements with Marlowe Asset Management Title Insurance Group, Inc. A comprehensive closing checklist and timeline will be prepared and distributed to all parties.
8. Maintain Bridge Covenant Compliance. Fairwater must continue to comply with all financial covenants, reporting obligations, and other terms and conditions of the Bridge Credit Agreement until the payoff is complete. This includes timely delivery of quarterly compliance certificates, property-level operating statements, and any other required reports. Any lapse in compliance could constitute an Event of Default and jeopardize the refinancing.
9. Preserve Exit Fee Waiver Timeline. The permanent loan closing must occur by March 31, 2026 at the latest to preserve the $1,200,000 exit fee waiver. The current target closing date of November 28, 2025 provides a substantial cushion of approximately four months. Nonetheless, Fairwater and Calderwood & Harkness should monitor the permanent financing timeline closely and escalate any issues that could cause delays beyond this deadline.
C. Timeline Sensitivity
The following dates are critical to the refinancing timeline and should be tracked and monitored closely:
The target permanent loan closing date of November 28, 2025 provides a 33-day cushion before the bridge maturity date of December 31, 2025. In the event that the permanent financing is delayed beyond December 31, 2025, the feasibility of the extension option is uncertain due to the current DSCR gap (1.169x actual versus 1.20x required), and the extension fee of $600,000 would be payable. Furthermore, if the closing is delayed beyond March 31, 2026, the $1,200,000 exit fee would become payable, increasing the total cost of the refinancing transaction.
A separate contingency analysis memorandum addressing the extension option, including sensitivity analyses for various NOI and interest rate scenarios and a discussion of partial paydown strategies, will be prepared and circulated by Calderwood & Harkness.
XV. Attachments and Cross-References
This memorandum should be read in conjunction with the following documents, which have been provided to or are on file with Calderwood & Harkness:
• Bridge Credit Agreement, dated as of June 30, 2025, by and among Fairwater Operating Partnership, L.P., as borrower, Fairwater Real Estate Investment Trust, as guarantor, Kensington National Bank, N.A., as administrative agent, and the Lenders named therein (including all exhibits, schedules, and ancillary documents).
In addition, the following companion memoranda and documents will be prepared and circulated by Calderwood & Harkness in connection with the refinancing:
• Bridge Prepayment and Lien Release Mechanics Memorandum — a detailed memorandum addressing payoff procedures, lien release sequencing, UCC-3 termination filings, simultaneous closing mechanics, and title insurance coordination across the five states in which the Sun Belt Portfolio is located.
• Bridge Extension Analysis Memorandum — a contingency memorandum analyzing the feasibility of exercising the extension option under the Bridge Credit Agreement, including sensitivity analyses for the 1.20x DSCR extension condition under various NOI, interest rate, and partial paydown scenarios.
• Draft Payoff Request Letter — a draft letter to Kensington National Bank, N.A. (attention Thomas J. Pagano) requesting a formal payoff statement for the Bridge Facility, to be circulated for client review and execution.
XVI. Confidentiality Notice
This memorandum constitutes a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP in anticipation of and in connection with the rendering of legal advice to Fairwater Real Estate Investment Trust and Fairwater Operating Partnership, L.P. regarding the refinancing of the Bridge Credit Facility described herein. This memorandum is protected by the attorney-client privilege and the work product doctrine and is intended solely for the use of the addressees named above.
This memorandum and the information contained herein may not be disclosed, distributed, or made available to any third party — including the Administrative Agent, the Lenders, their counsel, or any prospective permanent lender — without the prior written consent of both Calderwood & Harkness LLP and Fairwater Real Estate Investment Trust. Any unauthorized disclosure could result in a waiver of the attorney-client privilege and work product protections applicable to this communication.
If you have received this memorandum in error, please notify Lisa Morrow at Calderwood & Harkness LLP immediately and destroy all copies of this document.
Calderwood & Harkness LLP