PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
MEMORANDUM
FROM: Philip Hartmann, Partner, and Lisa Morrow, Associate — Calderwood & Harkness LLP
TO: David A. Whitfield, General Counsel, and Naomi T. Sinclair, CFO — Fairwater Real Estate Investment Trust
DATE: October 3, 2025
RE: Review and Analysis of Commitment Letter from Clarendon Metropolitan Insurance Company — $240,000,000 Permanent CMBS Mortgage Loan (Sun Belt Portfolio Take-Out Financing)
MATTER NO.: 1036-00001
This memorandum is a privileged and confidential attorney-client communication. It is intended solely for the use of the addressees identified above and is protected from disclosure by the attorney-client privilege and the attorney work-product doctrine. Any distribution, copying, or use of this memorandum by any person other than the addressees or their authorized representatives is strictly prohibited. If you have received this memorandum in error, please notify Calderwood & Harkness LLP immediately.
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP has received and reviewed the commitment letter dated September 30, 2025 (the "Commitment Letter") issued by Clarendon Metropolitan Insurance Company ("Clarendon Metropolitan," NAIC No. 38921), a New York domiciled insurance company regulated by the New York Department of Financial Services, addressed to Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC, as proposed co-borrowers (collectively, the "SPE Borrowers"), and Fairwater Real Estate Investment Trust ("Fairwater" or the "Guarantor"), as proposed carve-out guarantor. The Commitment Letter was delivered by Garrett W. Hollister, Senior Vice President and Head of Commercial Real Estate Lending at Clarendon Metropolitan, with a copy to lender's counsel at Ashworth McPhail LLP.
The Commitment Letter covers a $240,000,000 fixed-rate permanent CMBS mortgage loan (the "Permanent Loan") intended to take out and fully repay the existing $240,000,000 bridge credit facility (the "Bridge Facility") provided by the syndicate led by Kensington National Bank, N.A. as administrative agent, which was originated in connection with Fairwater's acquisition of the Sun Belt Portfolio in June 2025. The Permanent Loan will be originated by Clarendon Metropolitan with the expectation that it will be contributed to a CMBS securitization trust.
The Permanent Loan will be secured by first-priority mortgage liens on all fourteen multifamily properties comprising the Sun Belt Portfolio (approximately 4,200 units across Texas, Georgia, Florida, North Carolina, and Tennessee), which Fairwater acquired from Meridian Sunstone Holdings LLC on June 30, 2025 for an aggregate purchase price of $385,000,000. The fourteen properties represent a geographically diversified portfolio of Class B and Class B+ garden-style and mid-rise multifamily communities, all of which are currently managed by Fairwater Residential Management LLC, Fairwater's wholly-owned property management subsidiary.
We have compared the Commitment Letter in detail against the term sheet dated August 25, 2025 (the "Term Sheet") previously provided by Clarendon Metropolitan and reviewed in our memorandum to Fairwater dated August 28, 2025. The Commitment Letter is broadly consistent with the Term Sheet in its principal economic terms, including the loan amount, interest rate, term, amortization schedule, and non-recourse structure. However, the Commitment Letter contains several notable additions and clarifications that were not addressed in the Term Sheet or that differ from the positions reflected in our marked-up Term Sheet, which we address in detail in this memorandum.
Our overall recommendation is that Fairwater should accept the Commitment Letter subject to specified modifications discussed in Section VIII below. The proposed modifications address areas where the Commitment Letter departs from market norms or from positions previously agreed upon at the Term Sheet stage, or where additional protections are warranted given the time-sensitive nature of this transaction.
With respect to time sensitivity, we emphasize the following critical dates:
• The Bridge Facility matures on December 31, 2025, and, as discussed in Section VII below, the extension conditions may not be satisfied based on current portfolio performance metrics.
• The target closing for the Permanent Loan remains November 28, 2025, consistent with the timeline previously discussed with Clarendon Metropolitan.
• The Commitment Letter has an expiration date of November 30, 2025, which provides a narrow two-day window after the target closing date, leaving virtually no room for delay or last-minute complications.
In light of these compressed timelines, we strongly recommend that Fairwater authorize our proposed response to the Commitment Letter by no later than October 7, 2025, and that the various conditions precedent action items identified in Section IX below be initiated immediately during the week of October 6, 2025.
II. SUMMARY OF COMMITMENT LETTER TERMS
The following is a detailed summary of the principal terms and conditions set forth in the Commitment Letter. Where applicable, we have noted deviations from the Term Sheet and areas of concern.
A. Loan Amount and Purpose
The Commitment Letter provides for a Permanent Loan in the principal amount of $240,000,000. This amount is unchanged from the Term Sheet. The stated purpose of the Permanent Loan is the full take-out and repayment of the Bridge Facility, with no excess proceeds available to the borrowers. The Commitment Letter expressly states that the Permanent Loan proceeds shall be applied exclusively to the retirement of the Bridge Facility, including accrued and unpaid interest, and to the payment of closing costs associated with the Permanent Loan. No portion of the Permanent Loan proceeds may be distributed to the borrowers or the guarantor for any other purpose.
The $240,000,000 loan amount represents approximately 62.34% loan-to-value based on the $385,000,000 aggregate appraised value of the Sun Belt Portfolio established at the time of Fairwater's acquisition from Meridian Sunstone Holdings LLC. This LTV ratio is well within the 65% maximum LTV covenant specified in the Commitment Letter and provides a meaningful cushion against potential appraised value declines in the updated appraisals that will be required as a condition to closing.
B. Borrower Structure
The co-borrowers under the Permanent Loan will be Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC (each an "SPE Borrower" and collectively the "SPE Borrowers"). Each SPE Borrower is a Delaware limited liability company formed specifically to hold title to one of the fourteen Sun Belt Portfolio properties. Each SPE Borrower is wholly owned by Fairwater Operating Partnership, L.P. (the "Operating Partnership" or "Fairwater OP"), a Delaware limited partnership (EIN 52-2847201), which serves as the sole member and manager of each SPE Borrower. The Operating Partnership is in turn controlled by Fairwater REIT as its sole general partner.
Fairwater Real Estate Investment Trust, a Maryland real estate investment trust listed on the New York Stock Exchange under the ticker symbol "FWTR" (SDAT Entity ID D19483726), will serve as the carve-out guarantor under the Permanent Loan. Fairwater's guaranty obligations are limited to the non-recourse carve-outs described in Section II.E below, subject to the full recourse triggers also described therein.
The Commitment Letter imposes rigorous CMBS single-purpose entity requirements on each SPE Borrower. These requirements are consistent with market practice for conduit CMBS loans and include the following elements:
• Separateness covenants, requiring each SPE Borrower to maintain its own books and records, bank accounts, stationery, and financial statements separate from any affiliate; to hold itself out as a separate entity; and to refrain from commingling its assets with those of any other person or entity.
• Independent director/manager provisions, requiring each SPE Borrower to have at least one independent director or independent manager (as applicable under its LLC agreement) whose affirmative consent is required for the filing of any voluntary bankruptcy petition or the taking of any other action that could reasonably be expected to result in a bankruptcy filing. The independent director or manager must have no material financial relationship with the borrower, the guarantor, or any of their affiliates, other than in its capacity as independent director or manager.
• Restrictions on additional indebtedness, prohibiting each SPE Borrower from incurring any debt other than the Permanent Loan and customary trade payables incurred in the ordinary course of operating the applicable property, payable within sixty days of the date incurred.
• Restrictions on transfers, mergers, and dissolutions, prohibiting each SPE Borrower from merging or consolidating with any other entity, transferring all or substantially all of its assets, or dissolving or liquidating without the prior written consent of the lender.
These SPE requirements are standard for CMBS financing and reflect the rating agency criteria for achieving bankruptcy-remote treatment of the SPE Borrowers. We will need to ensure that the amended and restated LLC agreements for each SPE Borrower incorporate all required separateness covenants and independent director provisions prior to closing.
C. Interest Rate and Payment Terms
The Commitment Letter confirms a fixed interest rate of 6.25% per annum for the full term of the Permanent Loan. This rate is consistent with the Term Sheet and was locked pursuant to the Rate Lock Deposit Side Letter Agreement dated September 15, 2025, in connection with the $2,400,000 rate lock deposit previously submitted by Fairwater.
The Permanent Loan will have a term of ten years from the date of closing. Based on the anticipated closing date of November 28, 2025, the maturity date would fall in November 2035. The Commitment Letter provides for a 30-year amortization schedule, with monthly payments of principal and interest calculated on the basis of a fully amortizing thirty-year mortgage.
Based on these parameters, the key debt service metrics are as follows:
• Monthly principal and interest payments: approximately $1,477,846 per month
• Annual debt service: approximately $17,734,152 per year
• Projected debt service coverage ratio (DSCR): based on trailing-twelve-month net operating income ("NOI") of $26,180,000 for the Sun Belt Portfolio, the DSCR is approximately 1.476x
These metrics represent a significant improvement over the Bridge Facility, which carries an all-in interest rate of 9.33% (comprised of a SOFR base rate of 4.33% plus a spread of 500 basis points). On an interest-only basis (since the Bridge Facility is interest-only), the current annual interest cost under the Bridge Facility is approximately $22,392,000. The transition to the Permanent Loan at a fixed rate of 6.25% will generate annual interest savings of approximately $7,392,000 on an interest-only comparison basis. We note, however, that the Permanent Loan includes scheduled amortization of principal, whereas the Bridge Facility is interest-only. Accordingly, the total annual debt service under the Permanent Loan ($17,734,152) is lower than the current Bridge Facility interest cost ($22,392,000) by approximately $4,657,848 per year, but this comparison is affected by the amortization component, which reduces outstanding principal over time.
The Commitment Letter further provides that upon the occurrence and during the continuance of an event of default, interest shall accrue at the default rate of 5.00% above the contract rate, resulting in a default rate of 11.25% per annum. This default rate is within the range of market practice for CMBS loans of this type, though we note it is at the higher end of the typical range of 4% to 5% above the contract rate.
D. Prepayment / Defeasance
The Commitment Letter establishes the following prepayment and defeasance terms:
• Lockout Period: No prepayment of the Permanent Loan is permitted for a period of 24 months from the closing date. Based on the anticipated closing date of November 2025, the lockout period would extend through approximately November 2027. During this period, the borrowers may not voluntarily prepay or defease the Permanent Loan in whole or in part.
• Defeasance: After the expiration of the lockout period and through the date that is 90 days prior to the maturity date, the borrowers may defease the Permanent Loan in whole (but not in part) by substituting U.S. Treasury obligations that provide cash flows sufficient to make all remaining scheduled payments of principal and interest under the Permanent Loan through the maturity date. The defeasance must comply with all requirements specified in the loan documents, including the retention of a defeasance consultant and accountant satisfactory to the servicer. The borrowers will bear all costs of defeasance, including the cost of the U.S. Treasury obligations, the fees of the defeasance consultant and accountant, rating agency fees (if applicable), and servicer processing fees.
• Open Period: During the final 90 days prior to the maturity date, the borrowers may prepay the Permanent Loan at par without penalty or premium.
• Yield Maintenance: The Commitment Letter does not offer yield maintenance as an alternative to defeasance. Defeasance is the sole available mechanism for early retirement of the Permanent Loan outside of the open period. This is consistent with the Term Sheet and is standard for CMBS conduit loans, which require defeasance rather than yield maintenance to preserve the cash flow characteristics of the loan within the securitization trust.
We note that the prohibition on partial defeasance means that Fairwater will not be able to release individual properties from the mortgage lien pool through a partial defeasance mechanism. If Fairwater anticipates the potential need to dispose of individual properties within the Sun Belt Portfolio during the loan term, this limitation should be considered. However, property releases in CMBS loans are typically addressed through separate release provisions in the loan documents, and we anticipate that release provisions will be among the negotiated terms of the definitive loan agreement.
E. Non-Recourse Structure and Carve-Out Guaranty
The Permanent Loan will be structured as a non-recourse obligation of the SPE Borrowers, meaning that the lender's remedies upon a default are generally limited to the collateral (the mortgaged properties and related security interests). Neither the SPE Borrowers nor the Guarantor will have personal liability for repayment of the loan, except as provided in the carve-out guaranty.
The Carve-Out Guaranty to be executed by Fairwater REIT will cover the following categories of borrower conduct:
• Fraud or intentional misrepresentation by any borrower or guarantor in connection with the Permanent Loan
• Misapplication or misappropriation of rents, insurance proceeds, or condemnation proceeds
• Commission of waste with respect to any mortgaged property
• Environmental liability, including the cost of remediation of hazardous materials
• Violation of the transfer restrictions set forth in the loan documents
• Violation of the SPE separateness covenants
• Failure to maintain required insurance coverages
• Misapplication of security deposits or tenant funds
In addition, certain events will trigger full recourse liability of the Guarantor for the entire outstanding balance of the Permanent Loan, including accrued and unpaid interest. These full recourse triggers include:
• A voluntary bankruptcy filing by any SPE Borrower
• A collusive involuntary bankruptcy filing against any SPE Borrower (i.e., an involuntary petition filed with the participation, encouragement, or collusion of the borrower, the guarantor, or any of their affiliates)
We note that the scope of the carve-outs set forth in the Commitment Letter is broader than the borrower's position reflected in our marked-up Term Sheet. In particular, we had sought to narrow the definition of "waste" to exclude ordinary wear and tear and conditions caused by force majeure events, and we had proposed a materiality qualifier for SPE covenant violations that would trigger full recourse liability (as opposed to loss carve-out liability). The Commitment Letter does not incorporate these proposed narrowing changes, and we recommend that these points be raised again in the response letter as discussed in Section VIII.E below.
F. Collateral. The Permanent Loan will be secured by the following collateral:
• First-priority mortgage liens (deeds of trust in Texas and North Carolina; security deeds in Georgia; mortgages in Florida and Tennessee) on all fourteen Sun Belt Portfolio properties, encumbering both the fee simple interest in the real property and all improvements thereon.
• Assignments of leases and rents for each of the fourteen properties, granting the lender the right to collect rents directly from tenants upon the occurrence of an event of default.
• Security interests in personal property and fixtures at each property, including furniture, fixtures, equipment, appliances, and other tangible and intangible personal property used in the operation of each property. These security interests will be perfected by the filing of UCC-1 financing statements in the appropriate jurisdictions.
• Pledge of 100% of the equity interests in each SPE Borrower by Fairwater Operating Partnership, L.P. The pledge will be evidenced by a pledge and security agreement and will be perfected by (a) the filing of UCC-1 financing statements and (b) the delivery of any certificates evidencing membership interests, if applicable.
• Assignments of property management agreements between each SPE Borrower and Fairwater Residential Management LLC (EIN 52-2953810), which assumed management of all fourteen properties effective July 1, 2025 upon Fairwater's acquisition of the portfolio from Meridian Sunstone Holdings LLC.
• Cash management and lockbox arrangements, pursuant to which all rents and other revenues from the properties will be directed to lender-controlled lockbox accounts and swept to a cash management account, with disbursements made in accordance with a waterfall specified in the cash management agreement. The Commitment Letter indicates that the cash management agreement will include provisions for the accumulation of reserves for taxes, insurance, and capital expenditures, but the specific terms of the cash management waterfall will be negotiated in connection with the definitive loan documents.
G. Origination Fee
Clarendon Metropolitan will charge an origination fee equal to 0.75% of the loan amount, which equals $1,800,000 ($240,000,000 × 0.75%). The origination fee is payable at closing and is non-refundable once the Commitment Letter has been accepted and the commitment has become effective. This fee is consistent with the Term Sheet and is within the market range for CMBS conduit loans of this size, which typically carry origination fees ranging from 0.50% to 1.00% of the loan amount.
H. Rate Lock Deposit
The Commitment Letter confirms receipt of the $2,400,000 rate lock deposit (reference number CL-CMBS-2025-09-0347) previously submitted by Fairwater on September 15, 2025, in accordance with the Rate Lock Deposit Side Letter Agreement of the same date. The rate lock deposit equals 1.00% of the $240,000,000 loan amount and was deposited to lock the 6.25% fixed interest rate.
The Commitment Letter provides that the rate lock deposit will be applied as a credit against closing costs at closing, including the origination fee, lender's legal fees, and third-party report costs. After application of the rate lock deposit, the net cash required from the borrowers at closing to cover closing costs will be reduced accordingly.
The Commitment Letter specifies the following conditions under which the rate lock deposit becomes non-refundable: if the borrowers fail to close the Permanent Loan for reasons other than (a) a default by the lender under the Commitment Letter, or (b) a failure of the lender's conditions precedent that is not attributable to the borrowers' failure to perform their obligations. In all other circumstances of borrower non-performance, the rate lock deposit may be retained by Clarendon Metropolitan as liquidated damages. The treatment of the rate lock deposit is governed by the terms of the Rate Lock Deposit Side Letter Agreement dated September 15, 2025, as supplemented by the Commitment Letter.
I. Commitment Expiration
The Commitment Letter provides that the commitment expires on November 30, 2025 if closing has not occurred by that date. There is no automatic extension provision. Any extension of the commitment expiration date would require the written agreement of Clarendon Metropolitan and may be conditioned upon the payment of an additional good faith deposit, the amount of which is not specified in the Commitment Letter.
We note the narrow timing window created by the November 30, 2025 commitment expiration date:
• The target closing date is November 28, 2025, leaving only two business days of cushion before the commitment expires.
• The Bridge Facility matures on December 31, 2025, leaving only 33 days between the commitment expiration and the bridge maturity.
• If closing does not occur by November 30, 2025 and the commitment expires, Fairwater would need to either renegotiate an extension with Clarendon Metropolitan (with no assurance of success and potentially at additional cost) or seek alternative financing on an extremely compressed timeline.
The inadequacy of this timing cushion is our highest-priority concern with the Commitment Letter, and we strongly recommend that Fairwater seek an extension of the commitment expiration date to December 15, 2025, as discussed in Section VIII.A below.
J. Exclusivity. The Commitment Letter requires that, from the date of Fairwater's acceptance of the Commitment Letter through the earlier of closing or the commitment expiration date, Fairwater and the SPE Borrowers agree not to solicit, negotiate, or accept any alternative permanent financing proposals for the Sun Belt Portfolio from any other lender or financing source. This exclusivity provision is intended to protect Clarendon Metropolitan's investment of time and resources in underwriting and closing the Permanent Loan.
The exclusivity obligation terminates automatically upon the expiration or termination of the Commitment Letter. We recommend that the exclusivity provision also be clarified to terminate immediately upon the lender's exercise of the market out provision or the lender's failure to fund, as discussed in Section VIII.D below.
K. Anticipated Securitization
The Commitment Letter states that Clarendon Metropolitan intends to contribute the Permanent Loan to a CMBS securitization trust, indicatively designated as CLRN 2025-C14 (subject to final pooling and trust designation). The securitization is expected to be a multi-borrower conduit transaction in which the Permanent Loan will be pooled with other commercial real estate loans originated by Clarendon Metropolitan and potentially other originators.
In connection with the anticipated securitization, the borrowers are required to cooperate with the securitization process, including by:
• Providing estoppel certificates from tenants as reasonably requested by the lender or its designee
• Executing and delivering tenant subordination, non-disturbance, and attornment agreements (SNDAs) as reasonably requested
• Providing updated financial information, operating statements, rent rolls, and other property-level data as required in connection with the securitization offering documents
• Cooperating with rating agencies in connection with the rating of the securities to be issued by the securitization trust
The Commitment Letter further provides that the borrowers' representations and warranties under the loan documents must be securitization-ready and must survive the securitization, meaning that they must be available to the trustee and certificateholders of the securitization trust as a basis for claims against the borrowers in the event of a breach. This is standard for CMBS conduit loans and reflects the expectations of the rating agencies and investors.
L. Governing Law
The Commitment Letter is governed by and shall be construed in accordance with the laws of the State of New York, without regard to conflict of laws principles. This is standard for CMBS loan documentation, as New York is the customary governing law jurisdiction for institutional commercial real estate lending transactions. The definitive loan documents are expected to also be governed by New York law, with the exception of the mortgage instruments, which will be governed by the law of the state in which the applicable property is located (Texas, Georgia, Florida, North Carolina, or Tennessee, as applicable).
III. CONDITIONS PRECEDENT TO CLOSING
The Commitment Letter specifies the following conditions that must be satisfied prior to or at the closing of the Permanent Loan. We have organized these conditions by category and have identified action items and timing considerations for each.
A. Appraisals. Clarendon Metropolitan requires MAI appraisals for each of the fourteen Sun Belt Portfolio properties, the results of which must be satisfactory to the lender in its sole discretion. The appraisals must meet the following criteria:
• Each appraisal must be prepared by a state-certified appraiser holding the MAI (Member, Appraisal Institute) designation.
• The appraiser must be approved by Clarendon Metropolitan. Thornfield Appraisal Group LLC (3100 Cumberland Boulevard, Suite 600, Atlanta, GA 30339) has been preliminarily approved by Clarendon Metropolitan as the appraiser for the Sun Belt Portfolio properties.
• The aggregate appraised value of the fourteen properties must support a loan-to-value ratio of no more than 65%, which requires an aggregate appraised value of at least $369,230,769 ($240,000,000 ÷ 0.65). The current aggregate appraised value of $385,000,000 (based on the acquisition appraisals from spring 2025) provides a cushion of approximately $15,769,231, or approximately 4.1%, above the minimum required appraised value. While multifamily property values in the Sun Belt markets have remained generally stable, any material decline in individual property values could narrow this cushion.
• Each appraisal must be dated within 120 days of the closing date. Based on the anticipated closing date of November 28, 2025, the appraisals must be dated no earlier than July 31, 2025. Depending on the dates of the acquisition appraisals, new appraisals or updates may be required.
Action Item: Engage Thornfield Appraisal Group LLC immediately during the week of October 6, 2025 to commence updated MAI appraisals for all fourteen properties. Based on typical turnaround times for multifamily appraisals of this complexity, we should allow four to six weeks for completion, with site inspections to be scheduled as soon as possible. This timeline would result in completed appraisals by approximately mid-November 2025, which provides limited margin for revisions or corrections.
B. Environmental Reports
The Commitment Letter requires Phase I environmental site assessments for each of the fourteen properties, meeting the following specifications:
• Each Phase I must be dated within 180 days of the closing date and must comply with ASTM E1527-21 standards for environmental site assessments.
• If the Phase I findings recommend further investigation, Phase II environmental site assessments must be completed as well, including subsurface testing and other investigation as warranted.
• Reliance letters must be provided in favor of the lender, its successors and assigns, and any CMBS trust to which the Permanent Loan is contributed, enabling these parties to rely upon the findings of the environmental reports.
The Phase I environmental assessments performed in connection with the acquisition due diligence in spring 2025 may still be within the 180-day window, depending on their exact dates. Based on a closing date of November 28, 2025, the Phase I reports must be dated no earlier than June 1, 2025. If the existing reports were dated prior to June 1, 2025, updated Phase I reports will need to be commissioned.
Action Item: Confirm the exact dates of the existing Phase I environmental reports from the acquisition due diligence. If any reports fall outside the 180-day window, commission updates immediately. In all cases, request reliance letters from the environmental consultant in favor of Clarendon Metropolitan and its successors and assigns, including any CMBS trust. Contact the original environmental consultants to determine their availability and willingness to issue reliance letters and, if necessary, to update their reports.
C. Title Insurance
Clarendon Metropolitan requires ALTA lender's title insurance policies to be issued by Marlowe Asset Management Title Insurance Group, Inc. (901 Main Street, Suite 1100, Dallas, TX 75202) for each of the fourteen properties. The title insurance requirements are as follows:
• The aggregate insured amount shall be $240,000,000, allocated among the fourteen properties based on their respective appraised values as determined by the updated appraisals.
• The policies must be issued on the most current ALTA loan policy form and must include the following required endorsements: comprehensive (ALTA 9.0 series), access, survey, zoning (including 3.1 endorsements where available), contiguity (where applicable, for properties consisting of multiple parcels), tax parcel, usury, variable rate (if applicable), and such other endorsements as the lender may reasonably specify.
• Title must reflect a first-priority lien position for each mortgage. All existing mortgages, deeds of trust, security deeds, and other liens securing the Bridge Facility must be released and reflected as satisfied of record prior to or simultaneously with the closing of the Permanent Loan. Coordination with bridge lender's counsel will be essential to ensure simultaneous satisfaction and recording.
• All permitted exceptions (i.e., title exceptions that will remain after closing, such as utility easements, subdivision restrictions, and other customary encumbrances) are subject to the lender's approval.
Action Item: Order title commitments from Marlowe Asset Management Title Insurance Group, Inc. for all fourteen properties during the week of October 6, 2025. Coordinate with Halcourt Briggs & Devlin LLP (Kenneth R. Delacroix), counsel to Kensington National Bank, N.A. as administrative agent under the Bridge Facility, regarding the timing and mechanics of the bridge lien releases and the preparation of satisfaction and release documents for recording in each applicable county. The title commitments should be reviewed promptly upon receipt to identify any title defects, unpermitted exceptions, or other issues that may require resolution prior to closing.
D. Surveys. The Commitment Letter requires current ALTA/NSPS land title surveys for each of the fourteen properties, meeting the following specifications:
• Each survey must comply with the 2021 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys and must include such Table A optional items as specified by the lender.
• Each survey must be certified to the lender, the title company (Marlowe Asset Management Title Insurance Group, Inc.), and the borrower.
• The surveys must accurately depict all improvements, easements, encroachments, rights-of-way, and other survey matters affecting each property.
The surveys prepared in connection with the acquisition in June 2025 may be acceptable if they can be recertified to the lender and title company. However, if there have been any changes to the improvements or site conditions at any property since the acquisition, updated surveys may be required.
Action Item: Contact the surveyor(s) who prepared the acquisition surveys to determine whether recertification is available and, if so, the cost and timeline for recertification. If recertification is not available or if site conditions have changed, commission updated surveys for the affected properties. Allow approximately three to four weeks for survey recertification or update.
E. Organizational Documents
The following organizational documents and certificates must be delivered at or prior to closing:
• Certificates of formation or certificates of existence and certificates of good standing for each of the fourteen SPE Borrowers from the Delaware Secretary of State.
• Foreign qualification certificates for each SPE Borrower in the state where its respective property is located. This includes foreign qualification certificates from the Secretaries of State (or equivalent offices) of Texas, Georgia, Florida, North Carolina, and Tennessee. If any SPE Borrower is not currently qualified to do business as a foreign entity in the applicable state, the foreign qualification process must be completed prior to closing.
• Certificate of good standing for Fairwater Operating Partnership, L.P. from the Delaware Secretary of State.
• Certificate of good standing for Fairwater Real Estate Investment Trust from the Maryland State Department of Assessments and Taxation (SDAT Entity ID D19483726).
• Amended and restated LLC agreements for each of the fourteen SPE Borrowers, incorporating all required CMBS separateness covenants, independent director/manager provisions, and other organizational terms required by the lender and the rating agencies. These amended and restated LLC agreements will supersede the existing LLC agreements and must be in form and substance satisfactory to the lender and its counsel.
• Operating partnership agreement for Fairwater Operating Partnership, L.P. (certified copy), to be reviewed by the lender to confirm authority, organizational structure, and compliance with the loan requirements.
• Board resolution of Fairwater REIT's Board of Trustees authorizing the execution and delivery of the Permanent Loan documents and the guaranty, which we understand was adopted on September 8, 2025. A certified copy of this resolution must be provided to the lender.
• Incumbency certificates for all officers and authorized signatories who will execute loan documents on behalf of the SPE Borrowers, the Operating Partnership, and Fairwater REIT.
Action Item: Request expedited good standing and existence certificates from the Secretary of State offices in Maryland, Delaware, Texas, Georgia, Florida, North Carolina, and Tennessee during the week of October 6, 2025. Begin preparation of the amended and restated LLC agreements for all fourteen SPE Borrowers, incorporating CMBS separateness covenants and independent director requirements consistent with the Commitment Letter and current rating agency standards. Assemble certified copies of all existing organizational documents, including the Operating Partnership agreement and the Board resolution dated September 8, 2025. Prepare incumbency certificates for review by the lender's counsel.
F. Legal Opinions
The Commitment Letter requires the following legal opinions to be delivered at closing:
• A borrower's counsel opinion from Calderwood & Harkness LLP, covering: (i) due organization and valid existence of each SPE Borrower, the Operating Partnership, and the Guarantor; (ii) authority to enter into and perform the loan documents; (iii) enforceability of the loan documents against each borrower and the guarantor; (iv) no conflicts with applicable law, organizational documents, or existing contractual obligations; and (v) non-consolidation of the SPE Borrowers with the Operating Partnership, the Guarantor, or any affiliate in the event of a bankruptcy proceeding.
• Local counsel opinions in each of the five states where properties are located (Texas, Georgia, Florida, North Carolina, and Tennessee), addressing the enforceability of the mortgage instruments, the validity of the security interests, recording and filing requirements, and other state-specific matters, including any state-specific usury or lending law issues.
The non-consolidation opinion is a critical element of CMBS lending and requires a detailed analysis of the organizational structure, separateness covenants, and operational independence of each SPE Borrower. This opinion will be based in part on the amended and restated LLC agreements and the borrower's compliance with the separateness covenants set forth therein.
Action Item: Identify and engage local counsel in each of the five states (Texas, Georgia, Florida, North Carolina, and Tennessee) for mortgage enforceability opinions during the week of October 6, 2025. Begin drafting the borrower's counsel legal opinion letter, including the non-consolidation opinion, and circulate a draft to the lender's counsel (Ashworth McPhail LLP) for review. The opinion letter should be substantially complete by the time loan documents are circulated in mid-October 2025.
G. REIT Compliance Certificate
The Commitment Letter requires a certificate from Fairwater REIT confirming the following:
• Fairwater has qualified and continues to qualify as a real estate investment trust for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended.
• Fairwater is in compliance with the REIT distribution requirements, having distributed at least 90% of its taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) for each applicable taxable year.
• The Permanent Loan and the related transactions contemplated by the Commitment Letter will not adversely affect Fairwater's REIT status, including with respect to the asset tests, income tests, and distribution requirements applicable to REITs.
The REIT compliance certificate must be reviewed by Crestline & Alderman LLP (Patricia S. Keene), Fairwater's regular corporate and securities counsel, to confirm the accuracy of the representations and the absence of any adverse REIT consequences arising from the Permanent Loan.
Action Item: Coordinate with Crestline & Alderman LLP (Patricia S. Keene) regarding the form and substance of the REIT compliance certificate. This should be initiated during the week of October 6, 2025 to allow sufficient time for review and finalization.
H. Insurance. The Commitment Letter requires evidence of the following insurance coverages for each of the fourteen properties, with the lender named as an additional insured, loss payee, and mortgagee, as applicable:
• Property and casualty insurance covering all risks of physical loss or damage, including fire, windstorm, flood (where applicable), and earthquake (if required), with coverage amounts not less than the replacement cost of the improvements at each property.
• General liability insurance with limits not less than $1,000,000 per occurrence and $2,000,000 in the aggregate, or such higher limits as the lender may require.
• Umbrella/excess liability insurance in an amount to be specified in the loan documents.
• Flood insurance certificates for any properties located in FEMA special flood hazard areas. Given the geographic distribution of the Sun Belt Portfolio across Texas, Georgia, Florida, North Carolina, and Tennessee, several properties may be located in or adjacent to special flood hazard areas, and appropriate flood insurance must be in place.
• Such other coverages as the lender may reasonably require, including workers' compensation insurance, boiler and machinery insurance, and builder's risk insurance (if any construction or renovation is ongoing at the time of closing).
Action Item: Coordinate with Fairwater's insurance broker to confirm that existing coverages meet the lender's requirements and to obtain certificates of insurance reflecting the lender as an additional insured, loss payee, and mortgagee. Identify any properties located in FEMA special flood hazard areas and confirm that adequate flood insurance is in place.
I. Property Management
The Commitment Letter requires the following with respect to the property management arrangements for the Sun Belt Portfolio:
• Subordination of the property management agreements between each SPE Borrower and Fairwater Residential Management LLC (EIN 52-2953810) to the mortgage liens and the other security interests securing the Permanent Loan. This subordination is intended to ensure that the lender's security interest has priority over the property manager's rights under the management agreements.
• The lender shall have the right to replace the property manager upon the occurrence and during the continuance of an event of default under the loan documents. This is a standard CMBS requirement and reflects the lender's interest in ensuring competent property management to protect the value of the collateral.
Action Item: Prepare subordination agreements for the property management agreements and circulate to Fairwater Residential Management LLC for review and execution prior to closing.
J. Financial Statements and Rent Rolls
The Commitment Letter requires the following financial information:
• Audited financial statements of Fairwater REIT for the most recent two fiscal years (fiscal years ending December 31, 2023 and December 31, 2024), audited by Whitmore Hargrove & Co., P.C. (engagement partner Christine M. Rowley), including balance sheets, income statements, statements of cash flows, and notes to the financial statements.
• Interim unaudited financial statements of Fairwater REIT through the most recent fiscal quarter (quarter ending September 30, 2025, when available), prepared in accordance with generally accepted accounting principles consistently applied.
• Current rent rolls for each of the fourteen properties, showing unit-by-unit occupancy, lease terms, rental rates, and any concessions or rent abatements.
• Operating statements for each property for the trailing twelve months, showing gross revenues, operating expenses, net operating income, and capital expenditures.
Action Item: Request updated audited and interim financial statements from Whitmore Hargrove & Co., P.C. (Christine M. Rowley) and coordinate with Fairwater's finance team (Naomi T. Sinclair) to compile interim financial statements for the quarter ending September 30, 2025. Prepare current rent rolls and operating statements for each of the fourteen properties through Fairwater Residential Management LLC.
K. Additional Conditions
The Commitment Letter sets forth the following additional conditions precedent to closing:
• Execution and delivery of all loan documents, including but not limited to: a loan agreement, a promissory note (or notes), the carve-out guaranty, an environmental indemnity agreement, mortgages (or deeds of trust or security deeds, as applicable) for each of the fourteen properties, assignments of leases and rents for each property, a pledge and security agreement, a cash management agreement, and UCC-1 financing statements for filing in the applicable jurisdictions.
• Payment of the origination fee in the amount of $1,800,000.
• Establishment of reserve accounts for taxes, insurance, and capital expenditures, as applicable. The specific reserve amounts are not specified in the Commitment Letter and will be negotiated in connection with the definitive loan documents. As discussed in Section VIII.H below, we recommend that the reserve amounts be specified or capped in the Commitment Letter response.
• Satisfactory completion of lender's engineering and physical condition reports for each of the fourteen properties, to be performed by a third-party engineer approved by the lender. The engineering reports will assess the physical condition of each property, identify deferred maintenance items, and estimate the cost of required repairs and replacements.
• No material adverse change in the financial condition of the borrowers or the guarantor, or in the physical condition or operating performance of any of the properties, between the date of the Commitment Letter and the closing date.
IV. LENDER'S REPRESENTATIONS AND COVENANTS
The Commitment Letter contains the following representations and covenants by Clarendon Metropolitan:
Clarendon Metropolitan represents that it has the corporate authority to make the Permanent Loan in the amount and on the terms set forth in the Commitment Letter, and that the Commitment Letter has been duly authorized by all necessary corporate action. Clarendon Metropolitan further represents that the issuance of the Commitment Letter does not violate any applicable law, regulation, or internal policy of Clarendon Metropolitan, or any agreement to which Clarendon Metropolitan is a party.
The Commitment Letter states that Clarendon Metropolitan's internal credit committee approval for the Permanent Loan has been obtained. This is an important representation, as it confirms that the Commitment Letter reflects a final credit decision (subject to the conditions precedent and the market out provision discussed below) and is not merely an indication of interest or a preliminary proposal.
However, the lender's obligation to fund the Permanent Loan remains subject to the absence of a material adverse change in capital markets conditions that would materially impair the lender's ability to originate or securitize the loan (the "market out provision"). The market out provision gives Clarendon Metropolitan discretion to withdraw from the commitment if, in its reasonable judgment, conditions in the CMBS capital markets have deteriorated to the extent that it would be unable to originate the Permanent Loan on the terms set forth in the Commitment Letter or to securitize the Permanent Loan on economically acceptable terms.
We note that the market out provision is standard in CMBS commitment letters and reflects the economic reality that CMBS lenders originate loans with the expectation of securitization. If CMBS market conditions deteriorate materially between the commitment date and the closing date — for example, due to a significant widening of CMBS credit spreads, disruption in the bond markets, or a broader financial market dislocation — the lender may not be able to securitize the loan at a price that makes the origination economically viable.
While the market out provision is standard, it should be understood as a meaningful risk factor in this transaction, particularly given the December 31, 2025 Bridge Facility maturity deadline. If Clarendon Metropolitan were to invoke the market out provision and withdraw from the commitment, Fairwater would need to find alternative permanent financing on an extremely compressed timeline to avoid a potential default under the Bridge Facility. As discussed in Section VIII.C below, we recommend negotiating a tighter definition of "material adverse change" in market conditions and including procedural protections, such as a notice requirement and a cure period, to mitigate this risk.
V. BREAKAGE AND TERMINATION PROVISIONS
A. Borrower Breakage
The Commitment Letter provides that if the borrowers fail to close the Permanent Loan for reasons within the borrowers' control — including failure to satisfy borrower-side conditions precedent, failure to deliver required documentation, or withdrawal from the transaction — then Clarendon Metropolitan may retain the rate lock deposit of $2,400,000 as liquidated damages. The Commitment Letter characterizes the rate lock deposit as a reasonable pre-estimate of the lender's damages in the event of borrower non-performance, including the loss of the interest rate lock, the opportunity cost of allocating capital and resources to the transaction, and administrative expenses.
In addition to the retention of the rate lock deposit, the Commitment Letter provides that the lender may seek recovery of its reasonable out-of-pocket expenses incurred in connection with the Permanent Loan, including appraisal costs, engineering report costs, environmental report costs, and legal fees of Ashworth McPhail LLP. This out-of-pocket expense recovery provision is an addition from the Term Sheet, which provided only that the rate lock deposit would serve as the lender's sole and exclusive remedy for borrower non-performance.
We are concerned about the interaction between the deposit retention provision and the out-of-pocket expense recovery provision. If both provisions are operative, the total breakage cost to Fairwater in the event of a failure to close could significantly exceed the $2,400,000 rate lock deposit. Given that the lender's out-of-pocket expenses could be substantial (particularly legal fees incurred through the closing process), we recommend that the response letter clarify that retention of the deposit is the lender's sole and exclusive remedy for borrower breakage, or, alternatively, that the out-of-pocket expense recovery be capped at a specified dollar amount. This is discussed further in Section VIII.B below.
B. Lender Breakage
The Commitment Letter provides that if Clarendon Metropolitan fails to fund the Permanent Loan despite the satisfaction or waiver of all conditions precedent, the rate lock deposit of $2,400,000 will be returned to the borrowers in full, and the borrowers may pursue claims against the lender for actual damages suffered as a result of the lender's breach. However, the Commitment Letter expressly provides that the borrowers' recovery is limited to actual, direct damages and excludes consequential, special, incidental, and punitive damages.
This limitation on the borrowers' remedies in the event of lender breakage warrants careful consideration. If Clarendon Metropolitan fails to fund and Fairwater is unable to secure alternative permanent financing before the December 31, 2025 Bridge Facility maturity, the consequential damages to Fairwater could be significant, potentially including default interest under the Bridge Facility, cross-default consequences under other Fairwater debt instruments, damage to Fairwater's credit standing and investor relations, and the cost of alternative financing obtained on less favorable terms. The exclusion of consequential damages would preclude Fairwater from recovering these types of losses. While limitations on consequential damages are common in commercial lending commitments, we recommend that Fairwater evaluate whether to accept this limitation or to negotiate a broader remedies provision given the unique time pressure of this transaction.
C. Mutual Termination
Either party may terminate the Commitment Letter by written notice to the other party if the closing has not occurred by the commitment expiration date of November 30, 2025. Upon mutual termination, the rate lock deposit is returned to the borrowers in full, and neither party shall have any further liability to the other, except for obligations that by their terms survive termination (such as confidentiality obligations and the exclusivity provision through its stated termination date).
VI. FEE OBLIGATIONS SUMMARY
The following table summarizes the fee obligations arising under the Commitment Letter and the estimated third-party costs associated with closing the Permanent Loan:
We note that the rate lock deposit of $2,400,000 will be credited against closing costs, effectively offsetting a substantial portion of the lender-side and third-party costs. However, the origination fee of $1,800,000 represents a significant additional outlay at closing. Fairwater should plan to have available at closing the origination fee plus the net amount of closing costs in excess of the rate lock deposit credit, which we estimate at approximately $1,800,000 to $2,100,000 in total out-of-pocket closing costs (net of the rate lock deposit credit and inclusive of the origination fee). These estimates do not include Calderwood & Harkness's own fees and expenses, which will be billed separately in accordance with our engagement letter.
VII. CRITICAL TIMELINE AND RISK ASSESSMENT
A. Timeline Analysis
The closing timeline for the Permanent Loan is aggressive but achievable, provided that all parties proceed with urgency and that no material complications arise in the due diligence, documentation, or title clearance processes. The key dates and milestones are as follows:
As indicated above, Ashworth McPhail LLP (Joanna C. Wexler), lender's counsel, is expected to circulate initial draft loan documents by approximately October 15, 2025. Given the complexity of a 14-property, 5-state CMBS loan — involving fourteen separate mortgage instruments, fourteen assignments of leases and rents, state-specific recording requirements, and the negotiation of the loan agreement, guaranty, cash management agreement, and other principal loan documents — the period from October 15 to November 14, 2025 for loan document negotiation is compressed but workable if both sides prioritize the transaction.
The two-day window between the target closing date (November 28, 2025) and the commitment expiration date (November 30, 2025) is the most significant scheduling risk. In our experience, CMBS closings of this magnitude frequently experience last-minute delays related to title clearance, recording, wire transfers, and documentation corrections. A two-day cushion provides virtually no margin for such delays. This is the primary reason we recommend extending the commitment expiration date to December 15, 2025, as discussed in Section VIII.A.