MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION
TO: Philip Hartmann, Partner, Banking & Finance
FROM: Lisa Morrow, Lead Associate, Banking & Finance
DATE: August 20, 2025
RE: Fairwater REIT — Bridge Prepayment and Lien Release Mechanics; $240,000,000 Senior Secured Bridge Credit Facility (Matter No. 1036-00001)
CC: Marcus Leung, Working Associate, Banking & Finance
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I. Executive Summary and Purpose
This memorandum analyzes the prepayment provisions, exit fee mechanics, and lien release procedures under the existing $240,000,000 Senior Secured Bridge Credit Facility (the "Bridge Credit Agreement"), dated as of June 30, 2025, among Fairwater Operating Partnership, L.P. (the "Borrower"), Fairwater Real Estate Investment Trust ("FREIT" or the "Guarantor"), the syndicate lenders party thereto (collectively, the "Lenders"), and Kensington National Bank, N.A. ("KNB"), as administrative agent and lead arranger. The purpose of this analysis is to provide a comprehensive roadmap for the anticipated payoff of the bridge facility from proceeds of the permanent CMBS take-out financing to be originated by Clarendon Metropolitan Insurance Company (the "Permanent Loan"). The target closing date for the Permanent Loan is November 28, 2025. The Bridge Credit Agreement has a stated maturity date of December 31, 2025.
Based on our review of the Bridge Credit Agreement, the related security documents, and applicable state law, we identify the following key findings:
• Voluntary Prepayment Right. The Borrower has the right to prepay the outstanding principal in whole or in part at any time without prepayment premium, subject to the delivery of five (5) business days' prior written notice to KNB as administrative agent.
• Exit Fee. An exit fee of $1,200,000 (0.50% of outstanding principal) is payable upon repayment, provided, however, that the exit fee is subject to full waiver if repayment is made from proceeds of permanent CMBS financing within nine (9) months of the bridge closing date, and no event of default exists at the time of repayment. As analyzed in Section IV below, all three waiver conditions should be satisfied if the Permanent Loan closes as anticipated.
• Complex Multi-State Lien Release Mechanics. The bridge facility is secured by first-priority mortgage liens on all fourteen (14) Sun Belt Portfolio properties, together with equity pledges, assignments of leases and rents, assignments of property management agreements, and related UCC financing statements. The collateral pool spans five (5) states — Texas, Georgia, Florida, North Carolina, and Tennessee — each with distinct requirements for the form, execution, and recording of lien release instruments. Advance coordination with KNB and its counsel, Halcourt Briggs & Devlin LLP (lead partner Kenneth R. Delacroix), is essential to prepare, pre-execute, and arrange for timely recording of all release documents.
• Recommendation. We strongly recommend initiating payoff coordination immediately. The fourteen-property collateral pool spanning five states, with each requiring state-specific release instruments and county-level recordings, presents significant logistical complexity. The thirty-three (33) day cushion between the target Permanent Loan closing date and the hard bridge maturity provides a meaningful but not unlimited buffer. Early engagement with KNB's counsel, the title insurer (Marlowe Asset Management Title Insurance Group, Inc.), and, where necessary, local counsel in each state will be critical to a successful simultaneous closing.
The sections that follow provide a detailed analysis of each of the foregoing matters.
II. Overview of Bridge Credit Facility — Key Terms
Set forth below is a summary of the material terms of the Bridge Credit Agreement relevant to the prepayment and lien release analysis.
A. Parties. The Bridge Credit Agreement was entered into as of June 30, 2025, among:
• Borrower: Fairwater Operating Partnership, L.P., a Delaware limited partnership and the operating partnership subsidiary through which FREIT conducts substantially all of its real estate operations.
• Guarantor: Fairwater Real Estate Investment Trust, a Maryland real estate investment trust, which provided a full recourse guaranty of all obligations under the Bridge Credit Agreement.
• Administrative Agent and Lead Arranger: Kensington National Bank, N.A. ("KNB"), a national banking association, acting as administrative agent for the benefit of the Lenders and as sole lead arranger and bookrunner for the syndicated facility.
• Lenders: The syndicate of lenders as set forth below.
B. Syndicate Composition
The $240,000,000 facility was syndicated among four Lenders as follows:
C. Outstanding Principal and Amortization
As of the date of this memorandum, the full $240,000,000 has been funded. The facility is structured on an interest-only basis with no scheduled amortization payments. Accordingly, the outstanding principal balance as of the date hereof is $240,000,000.
D. Interest Rate
The Bridge Credit Agreement provides for interest at a floating rate equal to 30-day Term SOFR plus 500 basis points per annum, with a SOFR floor of 3.00%. Based on 30-day Term SOFR of 4.33% as of August 11, 2025, the current all-in interest rate is approximately 9.33%. The Bridge Credit Agreement provides for a default rate of an additional 200 basis points above the otherwise applicable rate (i.e., SOFR + 700 bps), applicable upon the occurrence and during the continuance of an event of default.
At the current all-in rate of approximately 9.33%, the approximate monthly interest expense on the full $240,000,000 balance is approximately $1,866,000, and the annualized interest cost is approximately $22,392,000. These figures are, of course, subject to fluctuation based on changes in 30-day Term SOFR.
E. Maturity and Extension
The Bridge Credit Agreement has an initial maturity date of December 31, 2025, representing a six (6) month term from the June 30, 2025 closing date. The Borrower has a single extension option to extend the maturity date by six (6) months to June 30, 2026, subject to the satisfaction of the following conditions at the time of the extension request:
(i) No event of default shall have occurred and be continuing;
(ii) The portfolio loan-to-value ratio ("LTV") shall not exceed 65%;
(iii) The portfolio debt service coverage ratio ("DSCR") shall be not less than 1.20x; and
(iv) Payment of a 25 basis point extension fee in the amount of $600,000.
The availability and advisability of the extension option are addressed in a separate memorandum dated August 22, 2025. As noted in Section VIII below, however, the current portfolio DSCR under the bridge is 1.169x — below the 1.20x extension threshold — which raises questions about whether the extension option could be exercised if the Permanent Loan closing is delayed. This concern further underscores the importance of targeting and achieving the November 28, 2025 closing date.
F. Collateral. The obligations under the Bridge Credit Agreement are secured by the following collateral:
(a) First-Priority Mortgage Liens. First-priority mortgage liens (or deeds of trust, as applicable) on all fourteen (14) properties comprising the Sun Belt Portfolio, located across five states (Texas, Georgia, Florida, North Carolina, and Tennessee).
(b) Equity Pledges. Pledge of 100% of the membership interests in each of the fourteen (14) special purpose entity ("SPE") property-owning limited liability companies — Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC — pursuant to a Pledge and Security Agreement dated June 30, 2025 by Fairwater Operating Partnership, L.P. in favor of KNB as administrative agent.
(c) Assignments of Leases and Rents. Collateral assignment of all tenant leases, rental income, and related rights with respect to each of the fourteen (14) properties, pursuant to separate Assignments of Leases and Rents executed by each SPE in favor of KNB as administrative agent.
(d) Assignments of Property Management Agreements. Collateral assignment of the property management agreements between each SPE and Fairwater Residential Management LLC (the FREIT-affiliated property manager), effective as of July 1, 2025, pursuant to separate Collateral Assignments of Property Management Agreements.
(e) UCC Financing Statements. UCC-1 financing statements filed with the Delaware Secretary of State (covering the equity pledge of membership interests) and UCC-1 fixture filing financing statements filed in each county where a property is located (covering personal property, fixtures, and equipment at each property).
G. Governing Law and Lender's Counsel
The Bridge Credit Agreement is governed by the laws of the State of New York. KNB's outside counsel for the bridge facility is Halcourt Briggs & Devlin LLP, located at 1221 Avenue of the Americas, New York, NY 10020, with lead partner Kenneth R. Delacroix serving as the primary contact.
III. Voluntary Prepayment Provisions
A. Right to Prepay Without Premium
Section 2.05(a) of the Bridge Credit Agreement expressly permits the Borrower to prepay the outstanding principal in whole or in part at any time without prepayment premium or penalty. The relevant provision states:
"The Borrower may, upon not less than five (5) Business Days' prior written notice to the Administrative Agent, prepay the outstanding principal amount of the Loans in whole or in part, without premium or penalty (other than the Exit Fee, if applicable, as set forth in Section 2.09). Each such prepayment shall be accompanied by payment of all accrued and unpaid interest on the principal amount so prepaid through the date of prepayment."
Several aspects of this provision warrant emphasis:
First, the "no premium" language specifically refers to the absence of any yield-maintenance premium, make-whole amount, or similar prepayment penalty. This is a significant benefit to the Borrower, as bridge facilities of this nature frequently include yield-maintenance provisions or minimum interest guarantees that can impose substantial costs upon early repayment. Here, the Bridge Credit Agreement was negotiated to allow penalty-free prepayment, which is consistent with the parties' expectation that the bridge facility would be taken out by permanent financing within the initial six-month term.
Second, the exit fee provided for in Section 2.09 of the Bridge Credit Agreement is a distinct obligation from a prepayment premium. The exit fee is not characterized as a "premium or penalty" but rather as a separate fee payable upon repayment. The exit fee is analyzed in detail in Section IV below.
Third, upon full prepayment of all outstanding principal, together with all accrued and unpaid interest and any other amounts due under the Bridge Credit Agreement (including the exit fee, if applicable), all commitments of the Lenders under the Bridge Credit Agreement terminate automatically pursuant to Section 2.05(c). This automatic termination is important because it confirms that no further action by the Lenders is required to terminate their lending obligations, although, as discussed in Section VI, separate actions are required to release the collateral security.
Fourth, Section 2.05(a) provides that the prepayment notice, once given, is irrevocable. This is a standard provision in syndicated credit facilities, intended to allow the administrative agent and the Lenders to rely upon the notice in making arrangements for the application of prepayment proceeds. From a practical standpoint, this means that we must ensure the Permanent Loan closing is certain — or at least sufficiently advanced — before delivering the prepayment notice to KNB. Delivering a prepayment notice and then failing to make the prepayment on the specified date could constitute an event of default under the Bridge Credit Agreement, with potentially severe consequences.
B. Mechanics of Prepayment Notice
The prepayment notice must comply with the following requirements under the Bridge Credit Agreement:
Form and Delivery. The notice must be in writing and delivered to KNB as administrative agent at its designated notice address:
Kensington National Bank, N.A. 600 Lexington Avenue New York, NY 10022
Attention: Thomas J. Pagano, Managing Director, Real Estate Finance
Notices may be delivered by hand, by nationally recognized overnight courier, by facsimile (with telephonic confirmation), or by electronic mail to the extent permitted by Section 10.01 of the Bridge Credit Agreement.
Content of Notice. The prepayment notice must specify: (i) the proposed prepayment date; (ii) the principal amount to be prepaid (in this case, the full $240,000,000 outstanding); and (iii) the source of the prepayment funds (i.e., proceeds of the Permanent Loan from Clarendon Metropolitan Insurance Company).
Timing. The notice must be delivered not less than five (5) business days prior to the proposed prepayment date. KNB, as administrative agent, is responsible for promptly notifying each Lender of the prepayment notice and for distributing the prepayment proceeds to the syndicate Lenders on a pro rata basis in accordance with their respective Applicable Percentages under the Bridge Credit Agreement.
Recommended Timing. Based on the target Permanent Loan closing date of November 28, 2025, we recommend delivering the prepayment notice concurrently with, or immediately after, execution of the Permanent Loan documents. If execution of the Permanent Loan documents is targeted for approximately November 14, 2025 (two weeks prior to closing), the five business day notice period would place the earliest permissible prepayment date at approximately November 21, 2025. The target closing date of November 28, 2025 provides an adequate buffer beyond the minimum notice period. We note, however, that the prepayment notice should not be delivered until execution of the Permanent Loan documents is confirmed and the closing date is firm, given the irrevocable nature of the notice.
C. Partial Prepayment Considerations
While the Bridge Credit Agreement permits partial prepayment of the outstanding principal, any partial prepayment must be in a minimum amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof. At this time, however, a full prepayment of the entire $240,000,000 outstanding principal is anticipated, as the Permanent Loan is expected to provide a full take-out of the bridge facility.
We note one important limitation with respect to partial prepayment: the Bridge Credit Agreement does not contain partial release provisions. That is, even if the Borrower were to make a partial prepayment of a portion of the outstanding principal, KNB would not be obligated to release mortgage liens on any individual property or properties. A full payoff of all amounts outstanding under the Bridge Credit Agreement is required as a condition to the release of any liens. This is consistent with the cross-collateralized, cross-defaulted structure of the bridge facility and is discussed further in Section VI below in the context of the lien release mechanics.
IV. Exit Fee Analysis
A. Exit Fee Amount
Section 2.09 of the Bridge Credit Agreement provides for an exit fee (the "Exit Fee") in an amount equal to 0.50% of the outstanding principal balance at the time of repayment. Based on the current outstanding principal of $240,000,000, the Exit Fee is calculated as follows:
$240,000,000 × 0.50% = $1,200,000
The Exit Fee is payable to KNB as administrative agent, on behalf of the Lenders, at the time of repayment of the bridge facility. The Exit Fee is shared among the Lenders pro rata in accordance with their respective Applicable Percentages under the Bridge Credit Agreement.
The Exit Fee is distinct from the origination fee of $2,400,000 (1.00% of the facility amount) that was paid by the Borrower to KNB at the closing of the bridge facility on June 30, 2025. The origination fee was a one-time upfront fee and is not subject to refund or credit upon prepayment.
B. Exit Fee Waiver Conditions
Notwithstanding the general Exit Fee obligation, Section 2.09(b) of the Bridge Credit Agreement provides that the Exit Fee shall be waived in full if the repayment satisfies all of the following conditions:
(1) The repayment is made from proceeds of permanent CMBS financing (or similar conduit mortgage loan) obtained by the Borrower or an affiliate;
(2) The repayment occurs within nine (9) months of the bridge closing date (i.e., on or before March 31, 2026); and
(3) No event of default exists under the Bridge Credit Agreement at the time of repayment.
We analyze each condition in turn:
Condition (1) — CMBS Financing Proceeds. The proposed Permanent Loan from Clarendon Metropolitan Insurance Company is a CMBS conduit origination. The loan is anticipated to be securitized through the CLRN 2025-C14 trust vehicle. The loan fits squarely within the definition of "permanent CMBS financing" contemplated by the Exit Fee waiver provision. We note, however, that Clarendon Metropolitan is an insurance company, and the waiver provision references "permanent CMBS financing (or similar conduit mortgage loan)" without further definition. While we believe the proposed transaction clearly satisfies this condition — a CMBS conduit loan originated by an insurance company that serves as a B-piece buyer and conduit lender is, in our view, a paradigmatic example of CMBS financing — we recommend confirming with KNB's counsel at Halcourt Briggs & Devlin that they concur with this interpretation. Any ambiguity on this point should be resolved well in advance of closing, ideally at the time the Clarendon Metropolitan commitment letter is shared with KNB.
Condition (2) — Nine-Month Window. The bridge facility closed on June 30, 2025. The nine-month waiver deadline falls on March 31, 2026. The target Permanent Loan closing date of November 28, 2025 is well within this window, falling approximately five months after the bridge closing and four months before the waiver deadline. Even if the Permanent Loan closing were to slip to early Q1 2026, the waiver deadline provides meaningful cushion. This condition should not present any difficulty.
Condition (3) — No Event of Default. As of August 18, 2025, no event of default exists under the Bridge Credit Agreement. Fairwater Operating Partnership, L.P. is in compliance with all financial covenants under the Bridge Credit Agreement, including:
• Portfolio LTV: 62.34% (versus the maximum permitted LTV of 65%)
• Portfolio DSCR: 1.169x (versus the minimum required DSCR of 1.10x)
These calculations are set forth in our separate covenant compliance review memorandum dated August 18, 2025. We note that the DSCR of 1.169x, while above the 1.10x minimum covenant level under the Bridge Credit Agreement, is below the 1.20x threshold required for the extension option (as discussed in Section VIII below). Provided that no event of default arises between now and the Permanent Loan closing, this condition should be satisfied.
Conclusion. Based on the foregoing analysis, we conclude that if the Permanent Loan closes as planned on November 28, 2025, all three Exit Fee waiver conditions should be satisfied, and the $1,200,000 Exit Fee should be waived in full. The payoff request letter and funds flow memorandum should reflect zero exit fee, but we recommend including a contingency line item for the Exit Fee amount in the event that KNB disputes the applicability of the waiver or one of the conditions is not satisfied for any reason.
C. Documentation Requirements for Waiver
The Bridge Credit Agreement includes documentation requirements that must be satisfied in order for the Borrower to claim the Exit Fee waiver. Specifically, Section 2.09(c) requires the Borrower to deliver to KNB:
(i) Evidence of the permanent CMBS financing, including a copy of the commitment letter issued by the permanent lender; and
(ii) At closing, a closing confirmation evidencing the funding of the permanent CMBS loan and the application of proceeds to repayment of the bridge facility.
We recommend providing KNB with a copy of the Clarendon Metropolitan commitment letter promptly upon receipt. The commitment letter is currently anticipated to be issued on or about October 1, 2025. Sharing the commitment letter with KNB at that time will serve two purposes: (a) it will satisfy the documentation requirement under Section 2.09(c)(i), and (b) it will enable early engagement with KNB and its counsel on the payoff coordination process.
Additionally, the payoff letter to be issued by KNB should expressly confirm the waiver of the Exit Fee, conditioned upon receipt of permanent CMBS proceeds at closing and the continued absence of any event of default. This confirmation should be a negotiated term of the payoff letter.
V. Payoff Procedures
A. Payoff Request Letter
The Borrower (Fairwater Operating Partnership, L.P.) should deliver a formal payoff request letter to KNB requesting the following:
(1) Written Payoff Statement. A written payoff statement setting forth the total amount required to pay off the bridge facility in full as of the anticipated payoff date, itemized as follows:
(a) Outstanding principal ($240,000,000);
(b) Accrued and unpaid interest through the anticipated payoff date;
(c) A per diem interest figure for use in adjusting the payoff amount if the closing date shifts;
(d) Any outstanding fees, costs, or expenses payable by the Borrower under the Bridge Credit Agreement, including legal fees and expenses of KNB's counsel (Halcourt Briggs & Devlin LLP); and
(e) The Exit Fee (with notation of the Borrower's claimed eligibility for the waiver under Section 2.09(b)).
(2) Wire Instructions. Wire transfer instructions for the payoff funds, payable to KNB as administrative agent on behalf of the syndicate Lenders.
(3) Confirmation of Deliverables. Confirmation of the documents and instruments that KNB will deliver upon receipt of the payoff funds, including mortgage/deed of trust releases, UCC-3 termination statements, terminations of assignments of leases and rents, terminations of collateral assignments of property management agreements, and any other instruments necessary to release the bridge collateral.
A draft payoff request letter has been prepared separately for client review. The draft contemplates a payoff date of November 28, 2025, and includes language reserving the Borrower's right to adjust the payoff date upon reasonable notice.
We recommend delivering the payoff request letter to KNB no later than mid-October 2025 to allow KNB and its counsel adequate time to prepare the payoff statement, coordinate with the syndicate Lenders, prepare all release documents, and address any issues that may arise. Given the complexity of the collateral pool and the multi-state lien release mechanics, early engagement on the payoff process is essential.
B. Per Diem Interest Calculation
Interest on the bridge facility accrues on the outstanding principal of $240,000,000 at a floating rate equal to 30-day Term SOFR plus 500 basis points. At the current all-in rate of approximately 9.33%, the daily interest accrual (calculated on a 30/360 basis, as specified in the Bridge Credit Agreement) is approximately:
$240,000,000 × 9.33% ÷ 360 = approximately $62,200 per day
This figure is, of course, approximate and subject to adjustment based on the applicable 30-day Term SOFR rate during the relevant interest period. The payoff statement to be delivered by KNB should include a per diem interest figure effective for a specified "good-through" date, with a per diem adjustment applicable for each day that the closing extends beyond that date.
Because SOFR is a floating rate, the per diem figure stated in the payoff letter will be based on the then-applicable SOFR rate at the time the payoff letter is prepared. If there is a meaningful time lag between issuance of the payoff letter and the actual payoff date, the per diem may need to be recalculated. We recommend requesting that KNB provide a per diem calculated at the then-current SOFR rate, together with a mechanism for adjustment at closing to account for any SOFR rate change between the date of the payoff letter and the actual payoff date. This is particularly important given that the payoff request letter will be delivered in mid-October but the payoff is not expected to occur until late November — a period of approximately six weeks during which SOFR may fluctuate.
C. Wire Transfer Mechanics
The Bridge Credit Agreement provides that all payments to the Lenders are to be made through KNB as administrative agent. Accordingly, the payoff will be accomplished by a single wire transfer to KNB at the wire instructions to be specified in the payoff letter. KNB will be responsible for distributing the payoff proceeds to the syndicate Lenders pro rata in accordance with their respective Applicable Percentages.
Coordination with the Permanent Loan closing is critical. The permanent loan proceeds from Clarendon Metropolitan Insurance Company should be wired directly from Clarendon Metropolitan (or its designated closing agent) to KNB to effect a simultaneous payoff of the bridge facility. This will require careful coordination of the funds flow to ensure that the bridge payoff wire is sent promptly upon (or simultaneously with) the funding of the Permanent Loan. The wire sequence, timing, and any pre-funding requirements will be addressed in a separate comprehensive funds flow memorandum to be prepared as we approach the closing date.
We note that the simultaneous nature of the closing — with permanent loan funding and bridge payoff occurring on the same day — means that there will be a brief period during which both sets of loan documents are in effect. The title insurer (Marlowe Asset Management Title Insurance Group, Inc.) will need to address this overlap in its title insurance commitments and closing procedures, as discussed in Section VIII.C below.
VI. Lien Release Mechanics
A. Overview of Collateral to be Released
Upon full repayment of the bridge facility, all collateral security granted to KNB (as administrative agent for the benefit of the Lenders) must be released. The collateral consists of multiple types of security interests, many of which are memorialized in recorded instruments in multiple jurisdictions. The following is a comprehensive summary of the collateral to be released:
1. Mortgage Liens (14 Properties, 5 States). First-priority mortgages or deeds of trust (as applicable under state law) on each of the fourteen (14) Sun Belt Portfolio properties. The properties are located in five states — Texas, Georgia, Florida, North Carolina, and Tennessee — with varying legal requirements for the form and recording of mortgage release instruments. A detailed state-by-state analysis is provided in Section VI.B below.
2. Equity Pledges. Pledge of 100% of the membership interests in each of the fourteen (14) SPE limited liability companies (Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC), granted by Fairwater Operating Partnership, L.P. in favor of KNB pursuant to the Pledge and Security Agreement dated June 30, 2025. Release of the equity pledge will require termination of the related UCC financing statements, as discussed in Section VI.C below.
3. Assignments of Leases and Rents. Collateral assignments of all tenant leases and rental income with respect to each of the fourteen (14) properties, granted by each SPE in favor of KNB. In some states, the assignment of leases and rents is incorporated into the mortgage or deed of trust and will be released with the mortgage release instrument; in others, a separate recorded release instrument may be required. See Section VI.D below.
4. Assignments of Property Management Agreements. Collateral assignments of the property management agreements between each SPE and Fairwater Residential Management LLC (effective July 1, 2025), granted by each SPE in favor of KNB. These are typically unrecorded documents and can be released by letter agreement. See Section VI.E below.
5. UCC Financing Statements. UCC-1 financing statements filed in connection with the equity pledge (Delaware Secretary of State filings) and UCC-1 fixture filing financing statements filed in each county where a property is located. Termination of these filings by UCC-3 termination statements is required upon payoff. See Section VI.C below.
B. State-by-State Mortgage Release Requirements
The following is a state-by-state analysis of the legal requirements for releasing the mortgage liens on each of the fourteen (14) Sun Belt Portfolio properties.
1. Texas (5 Properties). Properties and SPEs:
Legal Framework. Texas is a deed of trust state. The security instruments for each of the five Texas properties are deeds of trust recorded in the applicable county or counties. Release of each deed of trust is accomplished by the execution and recording of a Release of Deed of Trust (sometimes referred to as a Deed of Release or Release of Lien).
Execution Requirements. The Release of Deed of Trust must be executed by the beneficiary under the deed of trust (KNB as administrative agent for the Lenders) or by its authorized representative. The instrument must be acknowledged (notarized) before a notary public. We note that because KNB is acting in a representative capacity as administrative agent, the signatory should be an authorized officer of KNB, and the notarial acknowledgment should reflect KNB's capacity as administrative agent for the benefit of the Lenders.
Recording Requirements. The Release of Deed of Trust must be recorded in the real property records of each county in which the deed of trust was recorded. For the five Texas properties, this will require recording in Travis County, Bexar County, Harris County and/or Fort Bend County (depending on how the Cypress Bend deed of trust was recorded), Fort Bend County (for Willowbrook Terrace, if separate from Cypress Bend), and Collin County and/or Denton County (depending on how the Heritage at Stonebriar deed of trust was recorded). We should confirm with Halcourt Briggs the specific counties of recording for each deed of trust.
Transfer Tax. Texas does not impose a state-level transfer tax or recording tax on the release of a deed of trust. Recording fees will be assessed on a per-page or per-document basis in accordance with the applicable county's fee schedule.
Timeline. We recommend coordinating with KNB's counsel to prepare releases in recordable form well in advance of the closing date, with the objective of having pre-signed releases available for recording on the closing date.
2. Georgia (3 Properties). Properties and SPEs:
Legal Framework. Georgia uses security deeds (also referred to as deeds to secure debt) rather than mortgages or deeds of trust. Release of a security deed is accomplished by the execution and recording of a Cancellation of Security Deed in the real property records of the applicable county.
Execution Requirements. The Cancellation of Security Deed must be executed by the secured creditor (KNB as administrative agent) or its authorized representative and must be recorded in the applicable county. Georgia law (O.C.G.A. § 44-14-3) requires the secured creditor to cancel the security deed within sixty (60) days of satisfaction of the secured obligation. Failure to cancel within this period subjects the secured creditor to statutory penalties, including liability for the borrower's attorney's fees and costs incurred in obtaining the cancellation.
Recording Requirements. Cancellations must be recorded in Fulton County (for Peachtree Crossings), Cobb County (for Cumberland Ridge), and Gwinnett County (for Sugarloaf Station).
Intangibles Tax Consideration. Georgia imposes an intangibles recording tax on the recording of certain instruments creating or securing long-term debt. However, the recording of a cancellation of a security deed is not subject to the intangibles recording tax, as it does not create a new encumbrance. We recommend confirming this with local Georgia counsel or Marlowe Asset Management Title's Georgia agent, but we do not anticipate any intangibles tax liability in connection with the release.
3. Florida (3 Properties). Properties and SPEs:
Legal Framework. Florida is a mortgage state. The security instruments for each of the three Florida properties are mortgages recorded in the applicable county. Release of each mortgage is accomplished by the execution and recording of a Satisfaction of Mortgage (or Release of Mortgage) in the official records of the applicable county.
Execution Requirements. The Satisfaction of Mortgage must be executed by the mortgagee (KNB as administrative agent for the Lenders) and notarized. Florida Statutes Section 701.04 requires the mortgagee to provide a satisfaction of mortgage within sixty (60) days of receipt of full payment of the mortgage debt. Failure to comply subjects the mortgagee to statutory penalties, including liability for damages suffered by the mortgagor and a potential penalty of $500.
Recording Requirements. Satisfactions must be recorded in Hillsborough County (for Bayshore Landings), Orange County (for Solara at Millenia), and Duval County (for Riverside Preserve).
Documentary Stamp Tax. Florida imposes a documentary stamp tax on certain recorded instruments, including mortgages and assignments of mortgages. However, a satisfaction or release of a mortgage is not subject to additional documentary stamp tax, as it does not create a new encumbrance or obligation. We confirm that the recording of the satisfactions should not give rise to any documentary stamp tax liability.
4. North Carolina (2 Properties). Properties and SPEs:
Legal Framework. North Carolina is a deed of trust state. Release of a deed of trust is accomplished by the execution and recording of a Cancellation of Deed of Trust, or by the entry of a cancellation on the margin of the recorded deed of trust (a "marginal cancellation"), though marginal cancellations are less common for commercial transactions.
Execution Requirements. The Cancellation of Deed of Trust must be executed by the holder of the note secured by the deed of trust (KNB as administrative agent) or by the trustee named in the deed of trust, and must be recorded in the applicable county.
Recording Requirements. Cancellations must be recorded in Mecklenburg County (for Stonewall Flats) and Wake County (for Crabtree Pointe).
Statutory Requirements. North Carolina General Statutes Section 45-36.9 et seq. governs the cancellation of satisfied security instruments. Under these provisions, the secured creditor is required to provide a cancellation instrument within thirty (30) days of satisfaction of the secured obligation. This is a shorter statutory deadline than in Georgia or Florida (both of which provide sixty (60) days) and should be communicated to KNB's counsel as part of the payoff coordination process.
5. Tennessee (1 Property). Properties and SPEs:
Legal Framework. Tennessee is a deed of trust state. Release of the deed of trust is accomplished by the execution and recording of a Release of Deed of Trust or, in some cases, by a marginal release entered on the margin of the recorded deed of trust in the register's office.
Execution Requirements. The Release of Deed of Trust must be executed by the lender or its agent (KNB as administrative agent) and recorded in Davidson County.
Recording Requirements. The release must be recorded in the Register of Deeds for Davidson County, Nashville, Tennessee.
Statutory Requirements. Tennessee Code Annotated Section 66-25-101 et seq. requires the secured creditor to provide a release of the deed of trust promptly upon satisfaction of the secured obligation. While the statute does not specify a precise number of days, Tennessee courts have interpreted "promptly" to require action within a commercially reasonable period. Given the simultaneous nature of the closing, the pre-signed release document approach discussed in Section VII.B below should ensure compliance.
C. UCC-3 Termination Statements
In addition to the mortgage/deed of trust releases, all UCC-1 financing statements filed in connection with the bridge facility must be terminated through the filing of UCC-3 termination statements. The UCC filings fall into two categories:
Equity Pledge UCC Filings. UCC-1 financing statements were filed with the Delaware Secretary of State in connection with the pledge of 100% of the membership interests in each of the fourteen (14) SPE LLCs by Fairwater Operating Partnership, L.P. (as debtor) to KNB (as secured party). These filings were made in Delaware because Fairwater Operating Partnership, L.P. is organized under the laws of the State of Delaware, and Article 9 of the Uniform Commercial Code provides that financing statements covering general intangibles (including membership interests in limited liability companies) are to be filed in the jurisdiction of the debtor's organization.
Upon payoff, UCC-3 termination statements must be filed with the Delaware Secretary of State to terminate these financing statements. KNB (as the secured party of record) or its counsel, Halcourt Briggs & Devlin LLP, should prepare and file the UCC-3 termination statements. Alternatively, under Delaware UCC Section 9-513, if the secured party fails to file a termination statement within twenty (20) days after receipt of an authenticated demand from the debtor, the debtor may file the termination statement itself. We anticipate, however, that KNB will cooperate in filing the terminations as part of the orderly payoff process.
Fixture Filings. UCC-1 fixture filing financing statements were filed in each county where a property is located, covering personal property, fixtures, and equipment at each property. These fixture filings were made in the county real property records (rather than with the state Secretary of State) because Article 9 provides that fixture filings must be filed in the office where a mortgage on the related real property would be recorded.
UCC-3 termination statements must be filed in each applicable county to terminate these fixture filings. We note that in some states, the mortgage or deed of trust release instrument may serve to release the fixture filing as well, particularly where the fixture filing is cross-referenced in the mortgage. However, this is a state-specific issue, and we recommend obtaining a state-by-state confirmation from Halcourt Briggs or from local counsel as to whether separate UCC-3 termination statements are required for the fixture filings in each state, or whether the mortgage release suffices.
Total UCC-3 Terminations. Based on the foregoing, the total number of UCC-3 termination statements required is estimated at approximately fifteen (15) to twenty-eight (28) filings, depending on how the original filings were structured. This estimate includes one (1) or more Delaware filings for the equity pledge (depending on whether the pledge of interests in all fourteen SPEs was covered by a single financing statement or by multiple statements) and up to fourteen (14) county-level fixture filing terminations (one per property).
Recommendation. We recommend requesting from Halcourt Briggs & Devlin a complete schedule of all UCC-1 filings made in connection with the bridge closing, with the following information for each filing:
• Filing number
• Filing date
• Filing jurisdiction (state or county)
• Debtor name(s)
• Secured party name
• Description of collateral covered
This schedule will enable us to prepare (or review) the corresponding UCC-3 termination statements and ensure that all filings are properly terminated upon payoff.
D. Assignment of Leases and Rents — Release/Termination
Each of the fourteen (14) properties has a separate Assignment of Leases and Rents granted by the applicable SPE to KNB as administrative agent. Upon full payoff of the bridge facility, KNB should execute a termination or release of each Assignment of Leases and Rents.
Whether a separate recorded release instrument is required for the Assignment of Leases and Rents depends on whether the assignment was recorded as a stand-alone instrument or was incorporated into the mortgage or deed of trust. In some states, the assignment of leases and rents is a separate recorded document and must be released by a separate recorded instrument. In others, the assignment is incorporated into the body of the mortgage or deed of trust and is automatically released when the mortgage or deed of trust is released or satisfied.
We need to confirm on a state-by-state and property-by-property basis whether the Assignments of Leases and Rents were recorded as separate instruments or were incorporated into the mortgages or deeds of trust. If separate instruments were recorded, separate release or termination instruments will need to be prepared, executed by KNB, and recorded in each applicable county. We recommend including this inquiry in our coordination letter to Halcourt Briggs & Devlin.
E. Assignment of Property Management Agreements — Release/Termination
The property management agreements between each SPE and Fairwater Residential Management LLC (effective July 1, 2025) were collaterally assigned to KNB pursuant to separate Collateral Assignments of Property Management Agreements. Upon full payoff of the bridge facility, KNB should execute a termination of each collateral assignment.
These collateral assignments are typically not recorded documents; they are contractual instruments that are maintained in the parties' files but are not filed in any public recording office. Accordingly, the termination of these assignments can be accomplished by a simple letter agreement or termination notice executed by KNB, acknowledging that the collateral assignments are terminated and that all rights under the property management agreements revert to the applicable SPE. We recommend that the form of termination letter be prepared by Halcourt Briggs & Devlin and provided in advance of the closing date for review and execution.
F. Guaranty Release
Fairwater Real Estate Investment Trust provided a full recourse guaranty of all obligations under the Bridge Credit Agreement pursuant to a Guaranty Agreement dated June 30, 2025. Upon full repayment of all amounts outstanding under the Bridge Credit Agreement, the guaranty terminates by its terms. Specifically, the Guaranty Agreement provides that the guarantor's obligations shall terminate upon the indefeasible payment in full of all guaranteed obligations, subject to customary survival provisions for indemnification obligations.
No separate release instrument is typically required for the termination of a guaranty; the guaranty terminates automatically by operation of its own terms upon satisfaction of the guaranteed obligations. However, as a matter of best practice, and for the benefit of Fairwater REIT's records and potential future financing activities, we recommend obtaining written confirmation from KNB (in the payoff letter or by separate letter) that the guaranty obligations are fully and irrevocably discharged upon receipt of the payoff funds. This written confirmation will provide a clean documentary record and may be useful in connection with representations to future lenders regarding the absence of outstanding contingent liabilities.
VII. Coordination with Halcourt Briggs & Devlin LLP
A. Advance Preparation of Release Documents
The complexity of the lien release mechanics — fourteen (14) properties across five (5) states, with multiple types of security interests in each jurisdiction — requires substantial advance preparation. Release documents must be drafted in state-specific forms, reviewed for accuracy, executed by authorized signatories of KNB, notarized, and coordinated for simultaneous recording in multiple counties on or about the closing date. This process cannot be accomplished on an expedited basis in the final days before closing; it must begin well in advance.
We recommend sending a formal coordination letter to Kenneth R. Delacroix at Halcourt Briggs & Devlin LLP (1221 Avenue of the Americas, New York, NY 10020) requesting the following items:
1. Draft Payoff Letter. A draft payoff letter from KNB, setting forth the payoff amount, per diem interest, wire instructions, and confirmation of the Exit Fee waiver, for review and negotiation in advance of the payoff date.
2. Mortgage/Deed of Trust Release Documents. Forms of all mortgage or deed of trust release documents for each of the fourteen (14) properties, prepared in the state-specific forms required for Texas (Release of Deed of Trust), Georgia (Cancellation of Security Deed), Florida (Satisfaction of Mortgage), North Carolina (Cancellation of Deed of Trust), and Tennessee (Release of Deed of Trust).
3. UCC-3 Termination Statements. UCC-3 termination statement forms for all UCC-1 financing statements filed in connection with the bridge closing, including the Delaware Secretary of State filing(s) for the equity pledge and the county-level fixture filings.
4. UCC Filing Schedule. A complete schedule of all UCC-1 filings made at the bridge closing, including filing numbers, filing dates, filing jurisdictions, debtor and secured party information, and a description of the collateral covered by each filing.
5. Assignments of Leases and Rents — Release/Termination. Confirmation as to whether the Assignments of Leases and Rents for each property were recorded as separate instruments or were incorporated into the mortgages or deeds of trust, and, if separate instruments, forms of termination or release documents for each.
6. Termination of Collateral Assignment of Property Management Agreements. A form of termination letter for the collateral assignments of property management agreements, to be executed by KNB.
7. Wire Instructions. Wire transfer instructions for the payoff, payable to KNB as administrative agent on behalf of the syndicate Lenders.
8. Proposed Timeline. A proposed timeline for the delivery, review, execution, and recording of all release documents, coordinated with the target closing date of November 28, 2025.
We recommend sending this coordination letter no later than October 10, 2025 to allow Halcourt Briggs & Devlin adequate time to prepare all documents, coordinate with KNB's internal teams, and address any issues that may arise. A seven-week lead time (October 10 to November 28) should be sufficient, but given the volume of documents and the multi-jurisdictional nature of the recordings, earlier engagement is preferable.
B. Pre-Signed Release Documents
We recommend requesting that KNB pre-sign all release documents in advance of the closing date, to be held in escrow pending receipt of the payoff funds. This is standard practice in simultaneous payoff/refinancing transactions and serves several critical purposes:
First, pre-signed documents ensure that the release instruments are ready for immediate recording upon confirmation that the payoff wire has been received. This eliminates the risk of delays caused by the need to obtain authorized signatures on the closing date, particularly given that multiple individuals at KNB may need to sign multiple documents across multiple states.
Second, the availability of pre-signed release documents is essential for the new lender (Clarendon Metropolitan Insurance Company) and the title insurer (Marlowe Asset Management Title Insurance Group, Inc.), both of whom will need assurance that the existing bridge liens will be released before (or simultaneously with) the recording of the new CMBS mortgage liens. Without pre-signed releases available for recording, the title insurer may be unable to issue lender's title insurance policies for the Permanent Loan, or may require additional endorsements or indemnities.
The pre-signed release documents should be delivered to a mutually agreed escrow agent, or to our firm (Calderwood & Harkness LLP), to hold in escrow pursuant to irrevocable escrow instructions providing that the release documents may be released from escrow and recorded only upon confirmation that the payoff wire has been received by KNB and the funds have been confirmed as good and available. The escrow instructions should be agreed upon by all parties in advance of closing.
Alternatively, Marlowe Asset Management Title Insurance Group, Inc. (the proposed title insurer for the Permanent Loan) may serve as the escrow agent for the lien release documents. Marlowe Asset Management Title will be coordinating the recording of the new CMBS mortgage liens for the Permanent Loan in each jurisdiction and is well positioned to simultaneously coordinate the recording of the bridge lien release documents. Consolidating both functions with Marlowe Asset Management Title would streamline the closing logistics and reduce the risk of recording delays or sequencing errors.
C. Simultaneous Closing Logistics
The Permanent Loan closing and bridge payoff must be coordinated to occur simultaneously. This requires close coordination among multiple parties and their respective counsel:
Clarendon Metropolitan Insurance Company (permanent lender, through its counsel Ashworth McPhail LLP, lead partner Joanna C. Wexler) will require evidence that the bridge liens will be released before or simultaneously with the recording of the new CMBS mortgage liens. Clarendon Metropolitan will not fund the Permanent Loan unless it is satisfied that its mortgage liens will be in first-priority position, free and clear of the bridge liens.
Marlowe Asset Management Title Insurance Group, Inc. (title insurer for the Permanent Loan) will require satisfaction of the existing bridge liens before issuing lender's title insurance policies for the Permanent Loan. Alternatively, Marlowe Asset Management Title may agree to insure over the bridge liens with a commitment to obtain releases within a specified period following closing, but this approach is less desirable and may require additional escrow arrangements or holdback provisions.
KNB and Halcourt Briggs & Devlin LLP will need to coordinate the delivery and release of pre-signed release documents, confirm receipt of the payoff wire, and authorize recording of the release documents.
We recommend organizing a single closing coordination call among all key parties — Calderwood & Harkness LLP, Halcourt Briggs & Devlin LLP, Ashworth McPhail LLP, and Marlowe Asset Management Title Insurance Group, Inc. — to align on the precise mechanics and sequencing of the simultaneous closing. This call should take place no later than early November 2025, after the Permanent Loan commitment has been issued and the principal closing documents have been negotiated. The coordination call should address, at a minimum:
• Funds flow sequencing (permanent loan funding → bridge payoff wire → confirmation of receipt → release of escrow documents → recording of releases and new liens)