Tom,
I hope you had a good weekend. I am writing in connection with the Purchase and Sale Agreement dated February 28, 2024 (as amended by the First Amendment dated April 12, 2024, the "PSA"), by and between Greystone Meridian Partners Fund III, L.P. ("Seller") and Fairwater Real Estate Investment Trust ("Buyer"), for the acquisition of the membership interests in the 14 property-owning LLCs identified therein (C&H Matter No. 1036-00004).
We have been reviewing the executed tenant estoppel certificates received to date against the rent roll attached as Exhibit H to the PSA (the "Rent Roll," dated as of December 31, 2023). Our review has identified six (6) estoppel certificates that contain material discrepancies from the corresponding Rent Roll information. Given that the estoppel delivery deadline under the PSA is May 15, 2024 (as extended from May 10, 2024 by the First Amendment), we want to flag these issues now so that we have adequate time to work toward resolution before that date.
**Estoppel Requirement — Brief Context**
As you know, under Section 5.4(a) of the PSA, Seller is required to deliver estoppel certificates from tenants representing at least eighty percent (80%) of in-place annual base rent (i.e., not less than $59,840,000 of $74,800,000 total ABR), and from every tenant occupying 25,000 or more RSF (each, a "Major Tenant"), in each case substantially in the form of Exhibit E to the PSA and in form and substance reasonably acceptable to Buyer and Buyer's lenders. Estoppel certificates containing material discrepancies from the Rent Roll may not satisfy this closing condition as currently delivered. We have summarized the six discrepancies below.
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**Discrepancy No. 1 — Rent Amount Variance (Pinnacle Container Services, Inc. / Alliance Commerce Center)**
- **Tenant:** Pinnacle Container Services, Inc. - **Property / Target Entity:** Alliance Commerce Center / GMP Alliance LLC - **Nature of Discrepancy:** The executed estoppel certificate states that the tenant's current monthly base rent is $38,412.00. The Rent Roll reflects current monthly base rent of $41,875.50 for this tenant, a difference of $3,463.50 per month ($41,562.00 annualized). - **Possible Explanation:** The tenant's reported figure appears to correspond to the base rent in effect prior to the contractual escalation scheduled for October 1, 2023 under the lease. The tenant may not have accounted for the most recent rent step, or the escalation may not have been applied. - **Request:** Please confirm the current contractual base rent for this tenant and provide the relevant lease amendment or escalation schedule supporting the Rent Roll figure. If the escalation was in fact applied and billed, please also provide evidence of billing and payment at the escalated rate so that we can assess whether a corrected estoppel certificate is required.
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**Discrepancy No. 2 — Lease Expiration Date Variance (Ridgeline Fulfillment Group LLC / Murfreesboro Distribution Center)**
- **Tenant:** Ridgeline Fulfillment Group LLC - **Property / Target Entity:** Murfreesboro Distribution Center / GMP Murfreesboro LLC - **Nature of Discrepancy:** The executed estoppel certificate states a lease expiration date of August 31, 2025. The Rent Roll reflects a lease expiration date of September 30, 2027—approximately two years later. - **Possible Explanation:** The Rent Roll figure may reflect the exercise of a renewal option that the tenant does not believe was exercised, or the Rent Roll may incorrectly treat an unexercised renewal option as firm remaining term. - **Request:** Please confirm whether a renewal option was in fact exercised by this tenant and, if so, provide a copy of the renewal notice, any related lease amendment, and landlord's acknowledgment of exercise. If the renewal option was not exercised and the Rent Roll is in error, please advise so that we can assess the impact on the ABR and weighted average lease term calculations.
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**Discrepancy No. 3 — Security Deposit Amount Variance (Hargrove Wealth Advisors, LLC / Buckhead Place Office Tower)**
- **Tenant:** Hargrove Wealth Advisors, LLC - **Property / Target Entity:** Buckhead Place Office Tower / GMP Buckhead LLC - **Nature of Discrepancy:** The executed estoppel certificate states that the security deposit currently held by landlord is $87,500.00. The Rent Roll reflects a security deposit of $175,000.00 for this tenant. - **Possible Explanation:** The lease may contain a security deposit burn-down or letter of credit reduction schedule that permitted the tenant to reduce the deposit amount upon satisfaction of specified conditions. The Rent Roll may not have been updated to reflect an authorized reduction. - **Request:** Please confirm the correct security deposit amount currently held and provide documentation of any authorized reduction (e.g., the relevant lease provision, any burn-down certification, or letter of credit amendment). Please also confirm whether this reduction has been accounted for in the aggregate security deposit figure of $4,283,000 referenced in the PSA, and update the Disclosure Schedules as applicable.
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**Discrepancy No. 4 — Outstanding Tenant Improvement Allowance (DataNorth Solutions, Inc. / SouthPark Corporate Center)**
- **Tenant:** DataNorth Solutions, Inc. - **Property / Target Entity:** SouthPark Corporate Center / GMP SouthPark LLC - **Nature of Discrepancy:** The executed estoppel certificate identifies an outstanding tenant improvement allowance in the amount of $214,600.00 that the tenant asserts remains unpaid by landlord. Neither the Rent Roll nor the property-specific Disclosure Schedule for GMP SouthPark LLC (Schedule 2-9) discloses any remaining landlord TI allowance obligation for this tenant. - **Request:** Please disclose the nature and amount of any remaining landlord work or TI allowance obligation with respect to this tenant, including the original TI allowance amount, amounts disbursed to date, and the basis for any remaining balance. Please provide the relevant lease provision or work letter, together with disbursement records, and update the Disclosure Schedules accordingly. As you know, undisclosed landlord obligations assumed by Buyer at closing are relevant to the purchase price adjustment provisions of the PSA.
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**Discrepancy No. 5 — Rent Commencement Date / Free Rent Period (Gulf Coast Logistics Partners LP / Southport Logistics Park)**
- **Tenant:** Gulf Coast Logistics Partners LP - **Property / Target Entity:** Southport Logistics Park / GMP Southport LLC - **Nature of Discrepancy:** The executed estoppel certificate indicates that the tenant is currently in a free rent period, with rent commencement not occurring until March 1, 2024. The Rent Roll, dated as of December 31, 2023, shows this tenant as paying full monthly base rent of $52,316.67 as of that date, with no notation of a free rent period or abatement. - **Request:** Please confirm the rent commencement date for this tenant and provide the relevant lease provision or any amendment addressing the free rent period. If the tenant is or was in a free rent period subsequent to the Rent Roll date, please confirm the duration of the abatement and the impact on in-place ABR so that we can reconcile the 80% threshold calculation. Please also update the Disclosure Schedules as applicable.
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**Discrepancy No. 6 — Claimed Landlord Default (Weston & Keiller LLP / Cool Springs Office Park)**
- **Tenant:** Weston & Keiller LLP - **Property / Target Entity:** Cool Springs Office Park / GMP Cool Springs LLC - **Nature of Discrepancy:** The form estoppel certificate (Exhibit E) asks tenants to confirm that, to the tenant's knowledge, no default by landlord exists under the lease. This tenant marked an exception to that certification and asserts that landlord has an unresolved obligation to repair or replace the HVAC system serving the tenant's premises (Suite 400), which the tenant characterizes as an ongoing landlord default. - **Materiality Note:** We note that the Property Condition Assessment prepared by Rampart Building Sciences, Inc. for Cool Springs Office Park identified approximately $620,000 in estimated immediate repair costs, which included HVAC system deficiencies. This tenant's claimed default may relate to the same building system issues identified in the PCA. - **Request:** Please provide details regarding the claimed default, including any tenant correspondence or maintenance requests, the current status of cure or remediation, and whether this issue is addressed by the PCA credit currently under negotiation. An estoppel certificate asserting an uncured landlord default may not satisfy the requirements of Section 5.4(a) with respect to this tenant, and we will need to evaluate the impact on the estoppel condition.
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**Request for Supplemental Disclosure and Next Steps**
For each of the six discrepancies identified above, we respectfully request that Seller either:
(a) provide supplemental documentation resolving the discrepancy and confirming that the Rent Roll is accurate — such documentation to include, as applicable, lease amendments, escalation schedules, renewal option exercise notices, security deposit reduction letters, TI allowance reconciliations, rent commencement confirmations, and default cure evidence; or
(b) if the estoppel certificate is correct and the Rent Roll requires correction, provide updated disclosure via a supplement to the applicable Disclosure Schedules (PSA Schedules 2-1 through 2-14) and a revised rent roll reflecting the accurate information.
To the extent any discrepancy is the result of tenant error, corrected or replacement estoppel certificates will need to be obtained before the May 15 deadline. We would ask that Seller coordinate with Argyle Property Services LLC (Sean Kilpatrick, Portfolio Manager) to obtain the necessary backup documentation and, where applicable, corrected tenant certifications.
**Given the May 15, 2024 estoppel delivery deadline, we would appreciate Seller's response and any supplemental materials by no later than Friday, May 10, 2024**, to allow adequate time for Calderwood & Harkness and Fairwater to review the supplemental documentation and assess whether the estoppel condition has been satisfied in accordance with the PSA.
We are happy to discuss any of the foregoing by phone if that would be helpful. I am generally available this week, and Doug Fairchild and Rafael Dominguez on our side are as well. Please don't hesitate to reach out.
Thank you, Tom. We appreciate your prompt attention to this.
Best regards,
Grace Nakamura Associate Calderwood & Harkness LLP 450 Park Avenue, 28th Floor New York, NY 10022 Direct: (212) 574-3891 gnakamura@calderwoodharkness.com
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