FORM OF AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
FAIRWATER SUN BELT [●] LLC
a Delaware Limited Liability Company
THIS FORM IS TO BE USED FOR EACH OF THE FOLLOWING ENTITIES:
Fairwater Sun Belt I LLC Fairwater Sun Belt II LLC Fairwater Sun Belt III LLC Fairwater Sun Belt IV LLC Fairwater Sun Belt V LLC Fairwater Sun Belt VI LLC Fairwater Sun Belt VII LLC Fairwater Sun Belt VIII LLC Fairwater Sun Belt IX LLC Fairwater Sun Belt X LLC Fairwater Sun Belt XI LLC Fairwater Sun Belt XII LLC Fairwater Sun Belt XIII LLC Fairwater Sun Belt XIV LLC
Dated as of [●], 2025
Prepared in connection with that certain Loan Agreement, dated as of [●], 2025, by and among Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC, as Co-Borrowers, and Clarendon Metropolitan Insurance Company, as Lender, in the original principal amount of $240,000,000
Prepared by:
Calderwood & Harkness LLP 425 Park Avenue New York, NY 10022 Matter No. 1036-00001
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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FAIRWATER SUN BELT [●] LLC
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement" or "Operating Agreement") of Fairwater Sun Belt [●] LLC, a Delaware limited liability company (the "Company"), is entered into and effective as of [●], 2025 (the "Effective Date"), by Fairwater Operating Partnership, L.P., a Delaware limited partnership (the "Sole Member"), as the sole member of the Company.
RECITALS
WHEREAS, the Company was formed as a Delaware limited liability company by the filing of a Certificate of Formation (the "Certificate of Formation") with the Secretary of State of the State of Delaware pursuant to the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq. (the "DLLCA");
WHEREAS, the Company was originally governed by a Limited Liability Company Agreement dated as of or about June 30, 2025 (the "Original Agreement"), entered into in connection with the acquisition of certain multifamily residential properties comprising the "Sun Belt Portfolio" from Meridian Sunstone Holdings LLC;
WHEREAS, Fairwater Operating Partnership, L.P., a Delaware limited partnership (the "Sole Member"), is the sole member of the Company, holding a one hundred percent (100%) membership interest therein;
WHEREAS, the general partner of Fairwater Operating Partnership, L.P. is Fairwater Real Estate Investment Trust, a Maryland real estate investment trust ("FREIT"), which holds a 99.2% interest in the Sole Member as its sole general partner, with the remaining 0.8% interest held by various limited partners as OP unit holders;
WHEREAS, FREIT is a publicly traded real estate investment trust listed on the New York Stock Exchange under the ticker symbol "FWTR," which has elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), and is required to distribute at least ninety percent (90%) of its taxable income to its shareholders in order to maintain its qualification as a REIT under Section 857(a) of the Code and to avoid the imposition of federal income tax and excise tax on undistributed income;
WHEREAS, the Company is entering into that certain Loan Agreement, dated as of [●], 2025 (the "Loan Agreement"), by and among Fairwater Sun Belt I LLC, Fairwater Sun Belt II LLC, Fairwater Sun Belt III LLC, Fairwater Sun Belt IV LLC, Fairwater Sun Belt V LLC, Fairwater Sun Belt VI LLC, Fairwater Sun Belt VII LLC, Fairwater Sun Belt VIII LLC, Fairwater Sun Belt IX LLC, Fairwater Sun Belt X LLC, Fairwater Sun Belt XI LLC, Fairwater Sun Belt XII LLC, Fairwater Sun Belt XIII LLC, and Fairwater Sun Belt XIV LLC (collectively, the "Co-Borrowers"), as co-borrowers, and Clarendon Metropolitan Insurance Company (NAIC Number 38921), a New York domiciled insurance company ("Lender"), in connection with a mortgage loan in the original principal amount of Two Hundred Forty Million and 00/100 Dollars ($240,000,000) (the "Loan"), which Loan is intended to be included in a commercial mortgage-backed securities securitization (anticipated securitization vehicle CLRN 2025-C14, indicative and subject to pooling and servicing arrangements);
WHEREAS, the Sole Member desires to amend and restate the Original Agreement in its entirety to incorporate single-purpose entity covenants, independent director/manager requirements, and other provisions required by Lender and customarily required in connection with CMBS-securitized mortgage loans; and
WHEREAS, Lender has required, as a condition to the making of the Loan, that this Agreement contain the single-purpose entity covenants, independent director provisions, and other protective covenants set forth herein.
NOW, THEREFORE, the Sole Member, as the sole member of the Company, hereby amends and restates the Original Agreement in its entirety as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any specified Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or general partnership or managing member interests, by contract, or otherwise. Without limiting the generality of the foregoing, the Sole Member, FREIT, Fairwater Residential Management LLC, and each of their respective subsidiaries and affiliated entities shall be deemed to be Affiliates of the Company for purposes of this Agreement.
"Bankruptcy" or "Bankruptcy Event" means, with respect to any Person, (a) the filing of a voluntary petition by such Person for relief under Title 11 of the United States Code (11 U.S.C. §§ 101, et seq.), as amended from time to time (the "Bankruptcy Code"), or any analogous provision of state or federal law, or any successor statute thereto; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any analogous provision of state or federal law, which petition is not dismissed within ninety (90) days after the filing thereof; (c) the making by such Person of a general assignment for the benefit of its creditors; (d) the appointment of a receiver, custodian, trustee, conservator, or liquidator for such Person or for all or a substantial portion of such Person's assets, which appointment is not vacated within ninety (90) days; (e) the admission in writing by such Person of its inability to pay its debts generally as they become due; or (f) the taking of any action by such Person in furtherance of any of the foregoing.
"Cash Management Agreement" means that certain Cash Management Agreement, dated as of [●], 2025, among the Co-Borrowers, Clarendon Metropolitan Insurance Company, as Lender, and the cash management bank designated thereunder, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Certificate of Formation" means the Certificate of Formation of the Company as filed with the Secretary of State of the State of Delaware, as the same may be amended or restated from time to time in accordance with this Agreement and the DLLCA.
"CMBS Securitization" means any securitization of the Loan or any interest therein, including the anticipated CLRN 2025-C14 trust, or any successor, replacement, or substitute pooling vehicle, trust, or other entity established in connection with the securitization of the Loan, including any re-securitization, re-REMIC, or other restructuring thereof.
"Co-Borrowers" means Fairwater Sun Belt I LLC, Fairwater Sun Belt II LLC, Fairwater Sun Belt III LLC, Fairwater Sun Belt IV LLC, Fairwater Sun Belt V LLC, Fairwater Sun Belt VI LLC, Fairwater Sun Belt VII LLC, Fairwater Sun Belt VIII LLC, Fairwater Sun Belt IX LLC, Fairwater Sun Belt X LLC, Fairwater Sun Belt XI LLC, Fairwater Sun Belt XII LLC, Fairwater Sun Belt XIII LLC, and Fairwater Sun Belt XIV LLC, collectively, and each individually a "Co-Borrower."
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations promulgated thereunder.
"Company" means Fairwater Sun Belt [●] LLC, a Delaware limited liability company.
"DLLCA" means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time.
"Excluded Actions" means those actions requiring the affirmative consent of the Independent Director as set forth in Section 7.3 of this Agreement.
"FREIT" means Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (EIN 52-2847193; Maryland State Department of Assessments and Taxation Entity ID D19483726), the sole general partner of the Sole Member.
"Independent Director" has the meaning set forth in Section 7.2 of this Agreement.
"Lender" means Clarendon Metropolitan Insurance Company (NAIC Number 38921), a New York domiciled insurance company, having its principal office at 1 MetroTech Center, Brooklyn, NY 11201, or its successors and assigns under the Loan Documents, including any special servicer, master servicer, or trustee under any CMBS Securitization.
"Loan" means the mortgage loan in the original principal amount of Two Hundred Forty Million and 00/100 Dollars ($240,000,000) made by Lender to the Co-Borrowers pursuant to the Loan Agreement.
"Loan Agreement" means that certain Loan Agreement, dated as of [●], 2025, by and among the Co-Borrowers, as borrowers, and Clarendon Metropolitan Insurance Company, as lender, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Loan Documents" means, collectively, the Loan Agreement, the Promissory Note, the Non-Recourse Carve-Out Guaranty Agreement, the Environmental Indemnity Agreement, the Mortgages, the Assignments of Leases and Rents, the Cash Management Agreement, the UCC Financing Statements, and all other documents, instruments, agreements, and certificates executed and delivered by any Co-Borrower or any other party in connection with the Loan, as the same may be amended, restated, supplemented, or otherwise modified from time to time. A list of the Loan Documents is attached hereto as Exhibit B.
"Member" or "Sole Member" means Fairwater Operating Partnership, L.P. (EIN 52-2847201), a Delaware limited partnership, and any successor sole member admitted in accordance with this Agreement.
"Mortgaged Property" means the real property owned by the Company and encumbered by a first-priority mortgage lien securing the Loan, as more particularly described on Schedule A attached hereto and incorporated herein by reference, together with all improvements, fixtures, and personal property located thereon or used in connection therewith.
"Operating Agreement" means this Amended and Restated Limited Liability Company Agreement, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Original Agreement" means the original Limited Liability Company Agreement of the Company, dated as of or about June 30, 2025, which is hereby amended and restated in its entirety by this Agreement.
"Permitted Distributions" has the meaning set forth in Section 5.2 of this Agreement.
"Person" means any individual, corporation, partnership, limited liability company, trust, estate, unincorporated association, joint venture, governmental authority, or any other entity.
"Property Management Agreement" means that certain property management agreement with Fairwater Residential Management LLC (EIN 52-2953810), a Delaware limited liability company, effective as of July 1, 2025, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the Loan Documents.
"REIT Distribution Requirement" means the requirement under Section 857(a) of the Code that FREIT distribute to its shareholders at least ninety percent (90%) of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gain) in order to maintain its qualification as a real estate investment trust under Sections 856 through 860 of the Code and to avoid the imposition of federal income tax and excise tax on undistributed income.
"Separateness Covenants" means the covenants set forth in Section 8.1 of this Agreement.
"Special Purpose Entity" or "SPE" means an entity that complies with the Separateness Covenants set forth in this Agreement.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as amended from time to time.
Section 1.2 — Rules of Construction
Unless the context otherwise requires: (a) words importing the singular number shall include the plural number and vice versa; (b) words importing the masculine gender shall include the feminine and neuter genders and vice versa; (c) references to "Articles," "Sections," "Schedules," and "Exhibits" are to the articles, sections, schedules, and exhibits of this Agreement unless otherwise specified; (d) the words "herein," "hereof," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (e) the word "including" and words of similar import shall mean "including, without limitation," unless the context clearly requires otherwise; (f) references to any agreement or document shall be deemed to include references to such agreement or document as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms; (g) references to any statute or regulation shall be deemed to include references to such statute or regulation as amended, supplemented, or re-codified from time to time, and any successor statute or regulation thereto; (h) the headings and captions in this Agreement are for convenience of reference only and shall not be used to interpret the provisions hereof; and (i) all accounting terms not otherwise defined herein shall have the meanings assigned to them under generally accepted accounting principles in the United States ("GAAP").
To the extent that any provision of the DLLCA provides that a provision of a limited liability company agreement may not be varied by the limited liability company agreement, such provision of the DLLCA shall apply notwithstanding any inconsistent provision herein. In all other cases, to the maximum extent permitted by the DLLCA, this Agreement shall control over inconsistent provisions of the DLLCA that are not mandatory in nature.
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Name
The name of the Company is Fairwater Sun Belt [●] LLC. The business of the Company shall be conducted solely under such name, and the Company shall not adopt, use, or conduct business under any other name without the prior written consent of Lender (so long as the Loan is outstanding). All business, correspondence, and other communications of the Company shall be conducted in the name of the Company and not in the name of any other Person.
Section 2.2 — Formation
The Company was formed as a Delaware limited liability company pursuant to the DLLCA by the filing of the Certificate of Formation with the Secretary of State of the State of Delaware. A copy of the Certificate of Formation as filed is attached hereto as Exhibit A. The rights, powers, duties, obligations, and liabilities of the Sole Member shall be determined pursuant to the DLLCA and this Agreement. To the extent that the rights, powers, duties, obligations, and liabilities of the Sole Member are different by reason of any provision of this Agreement than they would be under the DLLCA in the absence of such provision, this Agreement shall, to the extent permitted by the DLLCA, control.
Section 2.3 — Purpose
(a) Single Purpose. The sole purpose of the Company is to: (i) acquire, own, hold, manage, lease, operate, maintain, repair, improve, and dispose of the Mortgaged Property; (ii) enter into and perform its obligations under the Loan Documents; (iii) enter into and perform its obligations under the Property Management Agreement, tenant leases, and other agreements relating to the ownership, operation, management, and maintenance of the Mortgaged Property; and (iv) engage in any and all activities incidental to, necessary for, or appropriate in connection with the accomplishment of the foregoing purposes.
(b) Limitation. The Company shall not engage in any business, activity, or purpose other than as expressly set forth in Section 2.3(a) above. Without limiting the generality of the foregoing, the Company shall not acquire, own, hold, manage, operate, or dispose of any real or personal property other than the Mortgaged Property and personal property incidental to the ownership and operation of the Mortgaged Property.
Section 2.4 — Registered Office and Registered Agent
The registered office of the Company in the State of Delaware shall be located at the office of its registered agent at Pemberton Industries, 251 Little Falls Drive, Wilmington, New Castle County, Delaware 19808, or at such other location as the Sole Member may from time to time determine in compliance with the DLLCA. The registered agent of the Company at such address shall be Pemberton Industries, or such other registered agent as the Sole Member may designate from time to time in accordance with the DLLCA.
Section 2.5 — Principal Office
The principal office of the Company shall be at the address of the Mortgaged Property, or at such other address as may be determined by the Sole Member from time to time with written notice to Lender. The mailing address for the Sole Member is: c/o Fairwater Real Estate Investment Trust, 8400 Chesapeake Center Drive, Suite 1200, Columbia, MD 21044. All correspondence, notices, and communications from Lender to the Company shall be directed to the addresses set forth in Section 16.4 of this Agreement.
Section 2.6 — Term
The Company shall have perpetual existence, commencing on the date of the filing of the Certificate of Formation with the Secretary of State of the State of Delaware, and continuing until dissolved in accordance with the provisions of this Agreement and the DLLCA. Notwithstanding any other provision of this Agreement or the DLLCA, the Company shall not be dissolved, and no event shall cause the dissolution of the Company, without the prior written consent of the Independent Director and, so long as the Loan is outstanding, the prior written consent of Lender.
Section 2.7 — Foreign Qualification
The Company shall qualify to do business as a foreign limited liability company in each state, territory, or jurisdiction in which the Mortgaged Property is located or in which such qualification is required by applicable law. As of the Effective Date, the Company is or shall become qualified to do business in the applicable jurisdiction(s) where the Mortgaged Property is situated, which may include the State of Texas, the State of Georgia, the State of Florida, the State of North Carolina, and/or the State of Tennessee, as applicable to the particular Co-Borrower for which this form of Agreement is being used. The Sole Member shall take all actions necessary to obtain and maintain such foreign qualifications and shall file all reports and pay all fees and taxes required in connection therewith.
ARTICLE III — MEMBER
Section 3.1 — Sole Member
The sole member of the Company is Fairwater Operating Partnership, L.P. (EIN 52-2847201), a Delaware limited partnership, having its principal office at c/o Fairwater Real Estate Investment Trust, 8400 Chesapeake Center Drive, Suite 1200, Columbia, MD 21044. The Sole Member holds a one hundred percent (100%) membership interest in the Company and is entitled to all of the economic and governance rights associated therewith, subject to the terms and conditions of this Agreement, including the restrictions set forth in Articles VII and VIII hereof.
Section 3.2 — Admission of Additional Members
No additional members shall be admitted to the Company without the prior written consent of Lender (so long as the Loan or any portion thereof remains outstanding) and the prior written consent of the Independent Director. Any purported admission of an additional member in violation of this Section 3.2 shall be null and void and of no force or effect. In the event that an additional member is admitted in accordance with the foregoing requirements, this Agreement shall be amended to reflect such admission, subject to Section 15.1 hereof.
Section 3.3 — Withdrawal
The Sole Member shall not resign, withdraw, or dissociate from the Company so long as the Loan or any portion thereof remains outstanding, without the prior written consent of Lender. Any purported resignation, withdrawal, or dissociation in violation of this Section 3.3 shall be null and void and of no force or effect. The resignation, withdrawal, or dissociation of the Sole Member shall not cause the dissolution of the Company if a successor member is admitted in accordance with this Agreement.
Section 3.4 — No Personal Liability of Member
The Sole Member shall not be personally liable for the debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a member of the Company. The foregoing shall not limit or affect any obligation or liability of the Sole Member, FREIT, or any other Person under the Loan Documents (including, without limitation, any obligations arising under the Non-Recourse Carve-Out Guaranty Agreement or the Environmental Indemnity Agreement).
ARTICLE IV — CAPITAL CONTRIBUTIONS
Section 4.1 — Initial Capital Contribution
The Sole Member has made initial capital contributions to the Company in connection with the formation of the Company and the acquisition of the Mortgaged Property as part of the Sun Belt Portfolio acquisition from Meridian Sunstone Holdings LLC, which acquisition closed on or about June 30, 2025. The total acquisition price for the fourteen-property Sun Belt Portfolio was Three Hundred Eighty-Five Million and 00/100 Dollars ($385,000,000). The Company's allocated share of the total portfolio acquisition price, corresponding to the appraised value of the Mortgaged Property owned by the Company, is set forth on Schedule A attached hereto. The initial capital contribution of the Sole Member shall be reflected in the books and records of the Company.
Section 4.2 — Additional Capital Contributions
The Sole Member may, but shall not be required to, make additional capital contributions to the Company from time to time as the Sole Member may determine in its sole discretion. No additional capital contributions shall be made or accepted if such contribution would violate the Separateness Covenants, the Loan Documents, or any other provision of this Agreement. The amount and timing of any additional capital contributions shall be determined by the Sole Member and reflected in the books and records of the Company.
Section 4.3 — Capital Accounts
A capital account shall be established and maintained for the Sole Member in accordance with Section 704(b) of the Code and the applicable provisions of the Treasury Regulations promulgated thereunder, including Treasury Regulation Section 1.704-1(b)(2)(iv). The capital account of the Sole Member shall be increased by (a) the amount of cash contributed by the Sole Member to the Company, (b) the fair market value of any property contributed by the Sole Member to the Company (net of liabilities assumed by the Company or to which such property is subject), and (c) allocations of items of income and gain to the Sole Member. The capital account of the Sole Member shall be decreased by (x) the amount of cash distributed to the Sole Member, (y) the fair market value of any property distributed to the Sole Member (net of liabilities assumed by the Sole Member or to which such property is subject), and (z) allocations of items of loss and deduction to the Sole Member.
Section 4.4 — No Interest on Capital
No interest shall accrue or be payable on the capital contributions of the Sole Member or on any amount credited to the capital account of the Sole Member.
ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
Section 5.1 — Allocations
For each fiscal year (or portion thereof) of the Company, all items of income, gain, loss, deduction, and credit of the Company shall be allocated to the Sole Member as the holder of a one hundred percent (100%) membership interest in the Company. Such allocations shall be reflected on the books and records of the Company and on the applicable tax returns filed by the Company.
Section 5.2 — Distributions; Permitted Distributions and REIT Distribution Carve-Out
(a) General. Subject to the terms and conditions of the Loan Documents and the Cash Management Agreement, the Company may make distributions to the Sole Member from legally available funds of the Company at such times and in such amounts as the Sole Member may determine, provided that any such distribution shall comply with the Separateness Covenants (including, without limitation, the requirement that the Company maintain adequate capitalization as set forth in Section 8.1(l)) and shall be made in accordance with the priority of payments established under the Cash Management Agreement (collectively, "Permitted Distributions").
(b) REIT Distribution Exception. Notwithstanding any other provision of this Agreement or the Separateness Covenants, and notwithstanding any restriction on distributions that may otherwise be applicable under the Loan Documents (except as provided below), the Company shall be permitted to make distributions to the Sole Member (which in turn may distribute such amounts to FREIT, directly or indirectly through Fairwater Operating Partnership, L.P.) to the extent necessary for FREIT to satisfy the REIT Distribution Requirement (i.e., to distribute to its shareholders at least ninety percent (90%) of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, in order to maintain its qualification as a real estate investment trust under Sections 856 through 860 of the Code and to avoid the imposition of federal income tax or excise tax on undistributed income); provided, however, that:
(i) No Event of Default (as defined in the Loan Agreement) has occurred and is continuing at the time of such distribution, unless such distribution constitutes the minimum amount legally required to be distributed in order for FREIT to maintain its qualification as a REIT under the Code, in which case such distribution may be made notwithstanding the existence of an Event of Default;
(ii) Such distributions are made in accordance with the priority of payments established under the Cash Management Agreement, including the applicable waterfall provisions set forth therein;
(iii) The Company shall, prior to making any distribution pursuant to this Section 5.2(b), provide to the Lender (or, following a CMBS Securitization, the special servicer or master servicer, as applicable) a written certification from FREIT's tax advisor or independent auditor (Whitmore Hargrove & Co., P.C., or such other nationally recognized accounting firm as may be retained by FREIT) certifying that the amount of such distribution is necessary for FREIT to maintain its qualification as a REIT under the Code and setting forth in reasonable detail the basis for such determination; and
(iv) The Company shall not distribute any amount in excess of the minimum amount necessary for FREIT to satisfy the REIT Distribution Requirement, after giving effect to all other sources of funds available to FREIT for such purpose.
(c) Priority. All distributions under this Section 5.2 are subject to the priority of payments established under the Cash Management Agreement and the Loan Documents. In the event of any conflict between this Section 5.2 and the terms of the Cash Management Agreement or the Loan Documents, the terms of the Cash Management Agreement and the Loan Documents shall control, except to the extent expressly provided in Section 5.2(b)(i) above with respect to minimum REIT distributions.
Section 5.3 — No Distributions in Kind
The Company shall not make distributions in kind to the Sole Member without the prior written consent of Lender. Any distribution of the Mortgaged Property or any interest therein shall be subject to the transfer restrictions set forth in the Loan Documents and Article IX of this Agreement.
ARTICLE VI — MANAGEMENT AND AUTHORITY
Section 6.1 — Member-Managed Company
The Company shall be a member-managed limited liability company. The Sole Member shall have the full and exclusive right, power, and authority to manage the business and affairs of the Company and to take all actions on behalf of the Company, subject in all cases to the Excluded Actions requiring the consent of the Independent Director under Section 7.3 of this Agreement, the restrictions on the Company's activities set forth in Article VIII (Separateness Covenants), and the requirements for Lender consent set forth in Section 6.4 and elsewhere in this Agreement and in the Loan Documents. Day-to-day property management and leasing activities with respect to the Mortgaged Property shall be delegated to Fairwater Residential Management LLC (EIN 52-2953810) pursuant to the Property Management Agreement, effective as of July 1, 2025, as may be amended from time to time in accordance with the Loan Documents.
Section 6.2 — Officers
(a) Designation. The Sole Member may from time to time designate one or more natural persons to serve as officers of the Company, including, without limitation, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as the Sole Member may deem necessary or appropriate. Officers shall serve at the pleasure of the Sole Member and may be removed with or without cause at any time by the Sole Member.
(b) Authority. Officers of the Company shall have such authority, duties, and responsibilities as may be delegated to them by the Sole Member from time to time, and may execute and deliver documents and instruments and take actions on behalf of the Company to the extent authorized by the Sole Member. Unless otherwise specified, the designation of an officer shall not, by itself, vest in such officer any authority to bind the Company.
(c) Authorized Signatories. The identification of authorized signatories for purposes of executing the Loan Documents and other instruments on behalf of the Company shall be set forth in the Borrower's Closing Certificate delivered in connection with the closing of the Loan. As of the Effective Date, the authorized signatories for the Company are those persons identified in the incumbency certificate delivered to Lender on the closing date of the Loan.
Section 6.3 — Limitation on Authority
Notwithstanding any other provision of this Agreement, no Member, officer, agent, employee, or other representative of the Company shall have the authority to:
(a) File or consent to the filing of any voluntary petition for relief under the Bankruptcy Code or any analogous provision of state or federal law, or consent to the institution of any involuntary bankruptcy or insolvency proceeding against the Company, or take any action in furtherance of any of the foregoing, without the prior affirmative written consent of the Independent Director in accordance with Section 7.3 of this Agreement;
(b) Take any action that is inconsistent with the Separateness Covenants set forth in Section 8.1 of this Agreement or that would cause the Company to fail to qualify as a Special Purpose Entity;
(c) Incur, create, assume, or guarantee any indebtedness on behalf of the Company other than (i) the Loan, and (ii) trade payables incurred in the ordinary course of owning and operating the Mortgaged Property, subject to the aggregate cap set forth in Section 8.1(h) of this Agreement;
(d) Dissolve, liquidate, wind up, consolidate, merge, convert, or sell all or substantially all of the assets of the Company, without the prior written consent of both the Independent Director and Lender (so long as the Loan is outstanding); or
(e) Amend, modify, supplement, or waive any provision of this Operating Agreement or the Certificate of Formation without the prior written consent of Lender (so long as the Loan is outstanding) and the Independent Director, as provided in Article XV of this Agreement.
Any action taken in violation of this Section 6.3 shall be null and void and of no force or effect, and no Person dealing with the Company shall be entitled to rely upon any action purportedly taken on behalf of the Company in contravention of this Section 6.3.
Section 6.4 — Actions Requiring Lender Consent
In addition to the Excluded Actions set forth in Section 7.3 and the other restrictions set forth in this Agreement, the following actions shall require the prior written consent of Lender so long as the Loan or any portion thereof remains outstanding:
(a) Any sale, transfer, conveyance, assignment, encumbrance, or other disposition of the Mortgaged Property or any interest therein, subject to the transfer restrictions set forth in the Loan Documents;
(b) The incurrence of any additional indebtedness by the Company (other than trade payables in the ordinary course as permitted under Section 8.1(h)) or the creation, grant, or assumption of any lien, mortgage, security interest, or encumbrance on any of the Company's assets (other than the liens created under the Loan Documents and permitted encumbrances thereunder);
(c) Any amendment, modification, or restatement of the Certificate of Formation of the Company;
(d) Any change in the Company's name, jurisdiction of formation, registered agent, or stated purpose;
(e) The entry by the Company into any material contract, agreement, or arrangement (other than tenant leases entered into in the ordinary course of business in accordance with the Loan Documents and the Company's customary leasing practices);
(f) The removal or replacement of the property manager (Fairwater Residential Management LLC) or any amendment or modification to the Property Management Agreement, except as expressly permitted under the Loan Documents; and
(g) Any other action for which the Loan Documents require the prior written consent of Lender.
ARTICLE VII — INDEPENDENT DIRECTOR/MANAGER
Section 7.1 — Appointment of Independent Director
The Company shall at all times have at least one (1) natural person serving as an Independent Director (also referred to herein as an "Independent Manager" or "Special Member"). The initial Independent Director shall be a person designated and provided by a nationally recognized independent director service provider, as identified in Schedule B attached hereto. The Independent Director shall be appointed by the Sole Member, subject to the qualifications set forth in Section 7.2 of this Agreement and the prior written consent of Lender (which consent shall not be unreasonably withheld, conditioned, or delayed). The form of Independent Director designation is attached hereto as Schedule B.
Section 7.2 — Qualifications of Independent Director
An "Independent Director" must be a natural person who, at the time of appointment and at all times while serving in such capacity:
(a) Is not, and has not been at any time during the preceding five (5) years, a member, manager, officer, director, employee, partner, shareholder, or Affiliate of the Company, the Sole Member, FREIT, Fairwater Operating Partnership, L.P., Fairwater Residential Management LLC, or any of their respective subsidiaries, Affiliates, or related entities (other than in the capacity of an independent director or independent manager of one or more special purpose entities affiliated with any of them);
(b) Is not, and has not been at any time during the preceding five (5) years, a creditor, supplier, contractor, customer, or other Person having a material business relationship with the Company, the Sole Member, FREIT, Fairwater Operating Partnership, L.P., or any of their respective subsidiaries, Affiliates, or related entities (other than in the capacity of an independent director or independent manager of special purpose entities affiliated with any of them);
(c) Is not a member of the immediate family (as defined in Rule 303A.02 of the NYSE Listed Company Manual, or any successor provision) of any individual who would be excluded from serving as an Independent Director under clauses (a) or (b) above;
(d) Is not a person who controls (as defined in the definition of "Affiliate" in Section 1.1 hereof) any entity that would be excluded from serving as an Independent Director under clauses (a), (b), or (c) above; and
(e) Has prior experience serving as an independent director, independent manager, or special member for special purpose entities in commercial real estate finance transactions, including CMBS-securitized mortgage loans.
The Independent Director shall not be deemed or considered to be a member, manager, officer, director, or employee of the Company for any purpose other than to act in the capacity described in this Article VII and to provide the affirmative consent required for the Excluded Actions set forth in Section 7.3. The Independent Director shall not have any authority to manage the business or affairs of the Company, or to bind the Company, except to the limited extent of providing or withholding consent to the Excluded Actions as set forth in this Article VII.
Section 7.3 — Excluded Actions; Matters Requiring Independent Director Consent
The following actions (collectively, the "Excluded Actions") shall not be taken by the Company, and no Member, officer, agent, or representative of the Company shall take or authorize any such action, without the prior unanimous affirmative written consent of the Independent Director:
(a) Filing a voluntary petition or otherwise initiating any proceeding to have the Company adjudicated as bankrupt or insolvent under the Bankruptcy Code or any analogous provision of federal or state law, or consenting to the institution of bankruptcy or insolvency proceedings against the Company;
(b) Seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official for the Company or for all or any substantial portion of the Company's assets or property;
(c) Making a general assignment for the benefit of the creditors of the Company;
(d) Filing an answer or other pleading in any proceeding admitting or failing to contest the material allegations of a petition filed against the Company in any bankruptcy, insolvency, or similar proceeding, or seeking or consenting to the entry of an order for relief against the Company in any such proceeding;
(e) Taking any action to dissolve, wind up, liquidate, consolidate, merge, or convert the Company, or to sell all or substantially all of the Company's assets (other than in connection with a sale of the Mortgaged Property permitted under the Loan Documents); or
(f) Amending, modifying, supplementing, or waiving any provision of this Operating Agreement or the Certificate of Formation in any manner that would be inconsistent with the Separateness Covenants set forth in Section 8.1 or the Loan Documents, or that would adversely affect the rights or interests of the Lender under the Loan Documents.
In considering whether to consent to any Excluded Action, the Independent Director shall owe fiduciary duties to the Company (and not solely to the Sole Member). The Independent Director shall take into account the interests of all stakeholders of the Company, including the creditors of the Company (and specifically including the Lender and its successors and assigns under the Loan Documents), in determining whether to provide or withhold consent to any Excluded Action. The Independent Director shall not consent to any Excluded Action unless the Independent Director determines, in good faith, that such action is in the best interests of the Company, giving due consideration to the interests of all creditors of the Company.
Section 7.4 — Removal and Replacement
(a) Removal. The Independent Director may be removed only for cause (which shall include fraud, willful misconduct, gross negligence, or incapacity) by the Sole Member, with the prior written consent of Lender (so long as the Loan is outstanding). Any removal of the Independent Director without the prior written consent of Lender shall be null and void.
(b) Vacancy. In the event of a vacancy in the position of Independent Director, whether by reason of death, resignation, incapacity, removal, or otherwise, the Sole Member shall appoint a replacement Independent Director satisfying all of the qualifications set forth in Section 7.2 of this Agreement within ten (10) business days following the occurrence of such vacancy. No Excluded Action may be taken during any period in which a vacancy exists in the position of Independent Director.
(c) Notice. Lender's counsel (Ashworth McPhail LLP, 51 Madison Avenue, 24th Floor, New York, NY 10010, Attention: Joanna C. Wexler) and Lender shall receive prompt written notice of (i) any appointment or replacement of the Independent Director, (ii) any resignation, removal, death, or incapacity of the Independent Director, and (iii) any vacancy in the position of Independent Director.
Section 7.5 — Compensation and Indemnification of Independent Director
(a) Compensation. The Independent Director shall be entitled to reasonable compensation for services rendered in such capacity, in an amount consistent with customary market rates for independent directors or independent managers of special purpose entities in comparable commercial real estate finance transactions. Such compensation shall be payable by the Company as an operating expense of the Company.
(b) Indemnification. The Company shall indemnify, defend, and hold harmless the Independent Director from and against any and all claims, losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and disbursements) arising out of or relating to the Independent Director's service in such capacity, to the fullest extent permitted by the DLLCA and other applicable law; provided, however, that the Company shall have no obligation to indemnify the Independent Director for any claims, losses, damages, liabilities, costs, or expenses arising out of or resulting from the Independent Director's willful misconduct, gross negligence, or fraud. The obligations of the Company under this Section 7.5(b) shall survive the resignation, removal, or replacement of the Independent Director and the dissolution and winding up of the Company.
ARTICLE VIII — SINGLE PURPOSE ENTITY / SEPARATENESS COVENANTS
Section 8.1 — Separateness Covenants
So long as the Loan or any portion thereof remains outstanding, the Company covenants and agrees that it shall comply with each of the following covenants (collectively, the "Separateness Covenants"):
(a) Separate Existence. The Company shall maintain its existence as a limited liability company duly organized and in good standing under the laws of the State of Delaware in compliance with the DLLCA. The Company shall not merge with or into, consolidate with, or convert into any other entity or entity form without the prior written consent of both the Independent Director and Lender.
(b) Separate Books and Records. The Company shall maintain its own complete and accurate books of account, records, and financial statements, separate and apart from those of the Sole Member, FREIT, Fairwater Operating Partnership, L.P., Fairwater Residential Management LLC, and any other Affiliate. The financial statements of the Company shall clearly reflect that the Company's assets, liabilities, revenues, and expenses are separate from those of any other Person. If the Company's financial results are consolidated or combined with those of any Affiliate in any financial statement or report, such financial statement or report shall contain a note indicating that the Company is a separate legal entity from such Affiliate and that the Company's assets are not available to satisfy the debts or obligations of any other Person. The independent auditor of FREIT is Whitmore Hargrove & Co., P.C. The financial statements of the Company shall be prepared in accordance with GAAP (or such other basis of accounting as may be required by Lender under the Loan Documents).
(c) Separate Bank Accounts. The Company shall maintain its own deposit accounts, securities accounts, and other bank accounts, separate from those of the Sole Member, FREIT, and all Affiliates, subject to and in accordance with the Cash Management Agreement. No funds of any other Person shall be deposited into any account of the Company, and no funds of the Company shall be deposited into any account of any other Person (except as contemplated by the Cash Management Agreement).
(d) Own Name. The Company shall conduct its business solely in its own name — Fairwater Sun Belt [●] LLC — and shall not use the name of the Sole Member, FREIT, Fairwater Operating Partnership, L.P., or any other Affiliate or Person in a manner that could create the appearance that the Company is a division, department, branch, or operating unit of any other entity. The Company shall hold itself out to the public, tenants, vendors, suppliers, governmental authorities, and all other Persons as a separate and distinct legal entity from the Sole Member, FREIT, and all other Affiliates.
(e) Stationery and Communications. The Company shall maintain its own stationery, invoices, purchase orders, checks, and other business forms and communications, each bearing the Company's own name. The Company shall not use the stationery, invoices, checks, or other business forms of the Sole Member, FREIT, or any other Affiliate.
(f) No Commingling. The Company shall not commingle its funds or other assets with those of the Sole Member, FREIT, or any other Person. All assets of the Company shall be maintained and recorded in the name of the Company, and no funds or assets of any other Person shall be intermingled with those of the Company.
(g) Arm's-Length Transactions. All transactions between the Company and the Sole Member, FREIT, Fairwater Residential Management LLC, or any other Affiliate (including, without limitation, all transactions under the Property Management Agreement) shall be on commercially reasonable arm's-length terms and conditions, properly documented, and conducted in a manner that reflects the separate existence of the Company. The Company shall not enter into or perform any transaction with any Affiliate on terms that are less favorable to the Company than those that would be obtained in a comparable arm's-length transaction with an unrelated Person.
(h) No Indebtedness. The Company shall not incur, create, assume, or guarantee any indebtedness other than: (i) the Loan; (ii) trade payables incurred in the ordinary course of owning and operating the Mortgaged Property in amounts not exceeding Two Hundred Fifty Thousand and 00/100 Dollars ($250,000) in the aggregate at any one time; and (iii) amounts owed to Fairwater Residential Management LLC under the Property Management Agreement in the ordinary course. The Company shall pay its own debts, liabilities, and obligations from its own funds as they become due, and shall not rely on the funds of any other Person to satisfy its obligations.
(i) No Guaranties. The Company shall not guarantee, become obligated on, assume, endorse, or otherwise become responsible for, directly or indirectly, the debts, obligations, or liabilities of the Sole Member, FREIT, or any other Person.
(j) No Liens. The Company shall not create, grant, incur, assume, suffer, or permit to exist any lien, mortgage, security interest, pledge, charge, or encumbrance on any of its assets or property, other than (i) the liens and security interests created under the Loan Documents in favor of Lender, (ii) permitted encumbrances as defined in and permitted under the Loan Agreement, and (iii) inchoate liens arising by operation of law in the ordinary course of business (e.g., mechanics' liens, materialmen's liens, and similar liens) that are being contested in good faith and for which adequate reserves have been established.
(k) No Dissolution. The Company shall not dissolve, wind up, liquidate (in whole or in part), or take any action in furtherance of any of the foregoing without the prior written consent of the Independent Director and, so long as the Loan is outstanding, the prior written consent of Lender.
(l) Adequate Capitalization. The Company shall maintain capital sufficient to conduct its business and operations and to pay its debts and liabilities as they become due. The Company shall not be rendered insolvent by any distribution to the Sole Member or by any other action or transaction. The Company shall not make any distribution to the Sole Member if, after giving effect to such distribution, the Company would not be able to pay its debts and obligations as they become due in the ordinary course of business.
(m) Separate Tax Returns. The Company shall file its own federal, state, and local tax returns (or, to the extent that the Company is treated as a disregarded entity for federal income tax purposes, the Company's items of income, gain, loss, deduction, and credit shall be reported on the tax returns of the Sole Member or, as applicable, FREIT) and shall pay its own taxes and other liabilities from its own funds. The Company shall be included in any consolidated or combined tax return of FREIT or the Sole Member only to the extent required by applicable law.
(n) Compliance with Formalities. The Company shall observe all organizational formalities required by the DLLCA and this Agreement. The Company shall maintain proper minutes and records of all actions taken by the Sole Member and the Independent Director. The Company shall not hold itself out as being liable for the debts of the Sole Member, FREIT, or any other Person, and shall not pledge its credit or assets for the benefit of any other Person.
(o) Correct Misunderstandings. The Company shall take all commercially reasonable steps to correct any known misunderstanding regarding the Company's separate identity, including correcting any misrepresentation by any third party that the Company is a division, department, or operating unit of any other entity, or that the Company's assets are available to satisfy the obligations of any other Person.
(p) Single Purpose. The Company shall not acquire or own any assets other than the Mortgaged Property and personal property incidental to the ownership and operation of the Mortgaged Property. The Company shall not operate any business other than owning, operating, managing, leasing, and maintaining the Mortgaged Property and performing its obligations under the Loan Documents.
(q) No Employees. The Company shall not have any employees. All services required in connection with the ownership, operation, management, leasing, and maintenance of the Mortgaged Property shall be performed by the property manager (Fairwater Residential Management LLC) pursuant to the Property Management Agreement, or by independent contractors or agents engaged by the Company or the property manager.
(r) Allocate Shared Expenses. To the extent that any overhead, shared services costs, administrative expenses, or other costs are incurred that are attributable in whole or in part to the Company as well as to the Sole Member, FREIT, or any other Affiliate, such costs shall be fairly allocated among the Company and the other entities on a reasonable basis (such as square footage, revenue, or unit count), and shall be separately documented, invoiced, and paid from the respective funds of each entity.
(s) Compliance with Independent Director Provisions. The Company shall comply with Article VII of this Agreement regarding the appointment, qualification, and maintenance of an Independent Director at all times while the Loan or any portion thereof remains outstanding.
Section 8.2 — Third-Party Beneficiary
Lender (Clarendon Metropolitan Insurance Company) and its successors and assigns under the Loan Documents (including, without limitation, any master servicer, special servicer, trustee, certificate holder, or other party under any CMBS Securitization, including the anticipated CLRN 2025-C14 trust, or any successor or replacement securitization vehicle) are intended third-party beneficiaries of the Separateness Covenants set forth in Section 8.1 and the Independent Director provisions set forth in Article VII of this Agreement, with the right (but not the obligation) to enforce such provisions directly against the Company and the Sole Member as if Lender (or such successor or assign) were a party to this Agreement. The Separateness Covenants and Article VII shall not be amended, modified, supplemented, or waived without the prior written consent of Lender (and, following a CMBS Securitization, the applicable servicer or trustee, in accordance with the terms of the pooling and servicing agreement or trust and servicing agreement governing such CMBS Securitization).
Section 8.3 — Non-Consolidation Intent
The Separateness Covenants set forth in Section 8.1 and the Independent Director provisions set forth in Article VII of this Agreement are adopted with the express intent and purpose that, in the event of a Bankruptcy or insolvency of the Sole Member, FREIT, Fairwater Operating Partnership, L.P., or any other Affiliate of the Company, the assets and liabilities of the Company will not be substantively consolidated with those of the Sole Member, FREIT, or any other Person. The Company acknowledges that Lender (and its successors and assigns under the Loan Documents, including any CMBS trust) has relied on the separateness of the Company from the Sole Member, FREIT, and all other Affiliates in making the Loan, and that the Loan would not have been made but for such reliance. The Company further acknowledges that Lender's willingness to make the Loan was conditioned upon the inclusion of the Separateness Covenants and Independent Director provisions in this Agreement, and that the parties to any CMBS Securitization of the Loan will similarly rely upon such provisions.
ARTICLE IX — TRANSFER RESTRICTIONS
Section 9.1 — Restrictions on Transfer of Membership Interests
So long as the Loan or any portion thereof remains outstanding, the Sole Member shall not, directly or indirectly, sell, transfer, assign, pledge, hypothecate, encumber, or otherwise dispose of all or any portion of its membership interest in the Company (whether voluntarily, involuntarily, by operation of law, or otherwise) without the prior written consent of Lender, except for:
(a) Transfers to a wholly-owned subsidiary of the Sole Member or FREIT, provided that (i) the transferee assumes in writing all obligations of the Sole Member under this Agreement and the Loan Documents, (ii) the transferee delivers to Lender all organizational documents, opinions of counsel, and other documentation reasonably required by Lender (including opinions regarding due authorization, SPE status, and enforceability), and (iii) such transfer does not violate any Separateness Covenant or any provision of the Loan Documents; and
(b) Transfers expressly permitted under the transfer provisions of the Loan Agreement, including intra-REIT transfers and other transfers as negotiated between the Co-Borrowers and Clarendon Metropolitan Insurance Company (with the participation of Ashworth McPhail LLP as Lender's counsel and Calderwood & Harkness LLP as Borrower's counsel) and specifically set forth in the Loan Agreement.
Any transfer or purported transfer of a membership interest in the Company in violation of this Section 9.1 shall be null and void and of no force or effect, and the Company shall not recognize any such transfer on its books and records.
Section 9.2 — Restrictions on Transfer of Mortgaged Property
No sale, transfer, conveyance, assignment, encumbrance, or other disposition of the Mortgaged Property or any interest therein (whether by deed, ground lease, easement, or otherwise) shall be made without the prior written consent of Lender in accordance with the Loan Documents. Any transfer or encumbrance in violation of this Section 9.2 shall constitute a default under the Loan Documents and shall be null and void to the extent permitted by applicable law.
Section 9.3 — Deemed Transfers
A change in control of the Sole Member, FREIT, or any intermediate entity holding a direct or indirect interest in the Company (whether by merger, consolidation, sale of equity interests, or otherwise) may constitute a deemed transfer of the Mortgaged Property or of a membership interest in the Company under the Loan Documents. The applicable thresholds, exceptions, and conditions for deemed transfers are set forth in the Loan Agreement, and the Company and the Sole Member shall comply with all such provisions. The Sole Member shall promptly notify Lender of any change in control or any event that may constitute a deemed transfer under the Loan Documents.
ARTICLE X — DISSOLUTION AND WINDING UP
Section 10.1 — Events of Dissolution
The Company shall be dissolved only upon the occurrence of one or more of the following events:
(a) The written consent of the Sole Member and the affirmative written consent of the Independent Director, together with the prior written consent of Lender (so long as the Loan or any portion thereof remains outstanding);
(b) The entry of a decree of judicial dissolution under Section 18-802 of the DLLCA by a court of competent jurisdiction; or
(c) The occurrence of any event that makes it unlawful for the business of the Company to be carried on.
No other event, including, without limitation, the death, disability, retirement, resignation, expulsion, bankruptcy, dissolution, or liquidation of the Sole Member, any member of FREIT, or any other Person, shall cause the dissolution of the Company. In the event that the Sole Member ceases to be a member of the Company for any reason, the Company shall not be dissolved, and the Company's business shall continue without interruption, so long as within ninety (90) days following such event, a successor member is admitted to the Company in accordance with this Agreement and the DLLCA.
Section 10.2 — Winding Up and Liquidation
Upon the dissolution of the Company in accordance with Section 10.1, the affairs of the Company shall be wound up and its assets liquidated in an orderly manner in accordance with the DLLCA and this Agreement. The Sole Member (or, if the Sole Member is unable or unwilling to act, a liquidating agent or trustee appointed in accordance with the DLLCA) shall serve as the liquidator and shall have full authority to wind up the affairs of the Company and to liquidate its assets. The proceeds of liquidation shall be distributed in the following order of priority:
(a) First, to the payment and satisfaction of all debts, obligations, and liabilities of the Company (including, without limitation, all amounts due and owing to Lender under the Loan Documents), whether by payment or the making of reasonable provision for payment thereof;