MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
FROM: Grace Nakamura, Senior Associate, Calderwood & Harkness LLP, 450 Park Avenue, 28th Floor, New York, NY 10022
TO: Douglas Fairchild, Responsible Partner, Calderwood & Harkness LLP
CC: Angela Fontaine, Billing Partner, Calderwood & Harkness LLP Rafael Dominguez, Working Associate, Calderwood & Harkness LLP Marcus Devereaux, Executive Vice President, Acquisitions, Fairwater Real Estate Investment Trust Camille Oduya, In-House Real Estate Counsel, Fairwater Real Estate Investment Trust Leah Torrance, Senior Vice President, Asset Management, Fairwater REIT / Fairwater Property Management LLC
DATE: April 8, 2024
RE: Service Contract Review — 14-Property Sun Belt Logistics & Office Portfolio Acquisition (Greystone Meridian Partners Fund III, L.P.)
MATTER NO.: 1036-00004
CLIENT: Fairwater Real Estate Investment Trust
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I. Executive Summary
Calderwood & Harkness LLP ("C&H" or the "Firm") has completed its review of all sixty-three (63) service contracts currently in effect across the fourteen (14) real properties (collectively, the "Portfolio" or the "Properties") being acquired by Fairwater Real Estate Investment Trust ("Fairwater REIT" or "Buyer") from Greystone Meridian Partners Fund III, L.P. ("Greystone Meridian" or "Seller"), pursuant to the Purchase and Sale Agreement dated February 28, 2024 (the "PSA"). The sixty-three contracts that are the subject of this memorandum are listed on PSA Exhibit I (List of Service Contracts) and have been made available for review in the virtual data room hosted by Seller's counsel, Blackridge Hayes LLP.
Our review covered each contract's assignability provisions, termination provisions (including notice periods and early termination fees), auto-renewal clauses and mechanics, scope of services and performance standards, pricing structure and escalation provisions, insurance requirements, indemnification provisions, and compliance with lender requirements under the assumed loan documents with Pinnacle Federal Bank, Veltrano Capital, and Sycamore Life Insurance.
As a threshold matter, we note that the Transaction is structured as an entity-level acquisition in which Buyer will acquire 100% of the membership interests in fourteen (14) single-purpose Delaware limited liability companies (each, a "Target Entity"). Because each service contract is held at the Target Entity level — that is, the Target Entity is the named contracting party — the entity-level transfer of membership interests does not technically constitute an "assignment" of any service contract under general contract law principles. The contracting party remains the same legal entity before and after closing, and only the equity ownership of that entity changes. However, seven (7) contracts contain change-of-control or indirect-transfer provisions that must be separately analyzed and addressed, as discussed in detail in Section IV below.
Of the sixty-three (63) contracts reviewed, fifty-one (51) are recommended for assumption and continuation following the closing (the "Assumed Contracts"). These contracts are freely assignable or unaffected by the entity-level transfer, are in good standing, provide services at market-competitive rates, and satisfy the insurance and indemnification requirements imposed by the applicable lenders. Twelve (12) contracts are recommended for termination post-closing (the "Terminated Contracts"), primarily because they are with Argyle Property Services LLC ("Argyle"), an affiliate of Seller that currently serves as property manager for the Portfolio, or because Fairwater Property Management LLC ("Fairwater PM"), Buyer's in-house property management platform, intends to engage its own preferred vendors to provide the relevant services.
The transition from the current vendor configuration to Fairwater PM's preferred vendor relationships will be facilitated by the ninety (90) day Transition Services Agreement between Argyle and Fairwater PM, attached to the PSA as Exhibit L (the "TSA"). The TSA provides for a monthly fee of $375,000 (aggregate total: $1,125,000) during the transition period, during which Argyle will continue to manage vendor relationships, supervise performance, and cooperate with Fairwater PM in onboarding replacement vendors.
The following is a summary of our key findings:
• No material termination penalties. The aggregate estimated early termination fees for all twelve (12) recommended terminations total approximately $4,200, a de minimis amount that does not warrant further negotiation or delay.
• All contracts in good standing. Based on our review of the contracts, the Seller's disclosure schedules, and representations from Argyle's portfolio manager Sean Kilpatrick, all sixty-three (63) contracts are current, with no defaults or pending cure periods noted as of the date of this memorandum.
• Aggregate annual cost. The aggregate annual cost of all sixty-three (63) service contracts is approximately $8,940,000. The twelve contracts recommended for termination account for approximately $1,230,000 of this total; however, Fairwater PM's replacement vendor contracts are expected to reduce this annual outlay by approximately $185,000 on a net basis.
• Assignability. Fifty-one (51) of sixty-three (63) contracts are freely assignable or unaffected by the entity-level transfer. Seven (7) contracts contain change-of-control or indirect-transfer provisions that require notice or consent, as detailed herein. No contract provides for automatic termination upon a change of control.
• Auto-renewal vigilance required. Three (3) of the contracts recommended for termination have upcoming auto-renewal dates within sixty (60) days of the scheduled closing date of June 6, 2024. Fairwater PM must deliver opt-out notices promptly post-closing to avoid automatic renewal for an additional term.
This memorandum sets forth our detailed analysis and recommendations. Exhibits A through D, attached hereto, provide the complete service contract schedule, draft termination notices, a form vendor notification letter, and an auto-renewal calendar, respectively.
II. Scope and Methodology
A. Review Scope
C&H has reviewed every service contract disclosed by Seller on PSA Exhibit I and in the virtual data room hosted by Blackridge Hayes LLP (the "Data Room"). The Data Room was organized by property, and each service contract was located in the subfolder designated "07 — Service Contracts" within the applicable property folder. In total, sixty-three (63) executed service contracts and seventy-one (71) associated amendments, addenda, and supplements were reviewed as part of this engagement.
The sixty-three (63) contracts span all fourteen (14) properties in the Portfolio, which are located across five (5) states in the Sun Belt region:
• Georgia (4 properties): Fairfield Logistics Center I (Fairburn), Fairfield Logistics Center II (Fairburn), Buckhead Place Office Tower (Atlanta), and Peachtree Corners Logistics Center (Peachtree Corners)
• Texas (3 properties): Westlake Distribution Hub (Houston), Katy Freeway Logistics Park (Katy), and Alliance Commerce Center (Fort Worth)
• Florida (3 properties): Lakeland Crossings Industrial (Lakeland), Southport Logistics Park (Jacksonville), and Brickell Bay Office Building (Miami)
• Tennessee (3 properties): Murfreesboro Distribution Center (Murfreesboro), Cool Springs Office Park (Brentwood), and Mount Juliet Commerce Park (Mount Juliet)
• North Carolina (1 property): SouthPark Corporate Center (Charlotte)
The service contracts encompass the full range of building services typical for a mixed logistics and office portfolio of this size and geographic scope, including the following service categories:
(a) Landscaping and grounds maintenance;
(b) Janitorial and cleaning services;
(c) HVAC maintenance and repair;
(d) Elevator maintenance and inspection;
(e) Fire and life safety monitoring and inspection;
(f) Security services (both security guard and electronic monitoring);
(g) Pest control;
(h) Waste management and recycling;
(i) Window washing;
(j) Parking lot maintenance and striping;
(k) Roofing maintenance;
(l) Generator maintenance;
(m) Snow and ice removal (limited; applicable only to Tennessee properties);
(n) Property management (Argyle affiliate — addressed separately under the PSA and TSA); and
(o) Miscellaneous specialty services.
B. Methodology
Our review methodology comprised the following steps:
1. Document Review. C&H reviewed all executed contracts and amendments provided in the Data Room, totaling sixty-three (63) base contracts and seventy-one (71) amendments. Each contract was read in full, and key provisions were summarized in a standardized review matrix (attached hereto as Exhibit A) to facilitate cross-contract comparison and portfolio-level analysis.
2. Financial Cross-Referencing. Contract pricing terms were cross-referenced against the operating expense budgets and CAM (Common Area Maintenance) reconciliation schedules provided by Seller's accountant, Caldwell Murray & Oakes LLP (contact: William Oakes, CPA). This cross-referencing served two purposes: (i) confirming that the contract values disclosed on Exhibit I were accurate and consistent with actual vendor payments, and (ii) identifying any material discrepancies between contractual pricing and actual disbursements that might indicate informal amendments, scope changes, or billing irregularities. No material discrepancies were identified.
3. Status Confirmation. The current status of each contract (active, expired-holdover, or terminated) was confirmed through direct communication with Sean Kilpatrick, portfolio manager at Argyle Property Services LLC, who manages day-to-day vendor relationships for all fourteen (14) properties. Mr. Kilpatrick confirmed that all sixty-three (63) contracts are currently active and in good standing, with no pending disputes, cure notices, or performance issues. Four (4) contracts were identified as operating in holdover (i.e., past their initial term and in an auto-renewal or month-to-month period), which is reflected in the schedule attached as Exhibit A.
4. PSA Compliance Analysis. Each contract was analyzed against the relevant provisions of the PSA, specifically Section 7.4 (Service Contracts), which provides that Buyer may designate contracts for termination prior to closing, to the extent such contracts are terminable without penalty on not more than thirty (30) days' notice, and that Buyer shall assume all contracts not so designated. Additionally, we analyzed each contract against the representations and warranties set forth in Section 5.9 (Service Contracts) of the PSA, which provides that Seller has delivered true, correct, and complete copies of all service contracts and that, to Seller's knowledge, no party is in default thereunder.
5. Fairwater PM Coordination. C&H coordinated extensively with Leah Torrance, Senior Vice President of Asset Management at Fairwater REIT and head of operations at Fairwater Property Management LLC, to identify contracts that Fairwater PM intends to replace with its own preferred national vendors. Ms. Torrance provided a list of Fairwater PM's preferred vendor relationships by service category and geographic region, which informed the termination recommendations set forth in Section VIII of this memorandum.
C. Key Contract Terms Analyzed
For each of the sixty-three (63) contracts, C&H analyzed the following categories of provisions:
Assignability. We classified each contract's assignability provisions into one of four categories: (i) expressly assignable without consent, (ii) assignable with vendor consent, (iii) silent on assignability, or (iv) containing a change-of-control or indirect transfer provision. The classification is particularly important in the context of the entity-level transfer structure, as discussed in Section IV below.
Change of Control / Indirect Transfer. Contracts containing provisions that could be triggered by a change in equity ownership of the contracting entity were flagged for separate analysis, as these provisions may impose notice or consent requirements even in the absence of a formal assignment.
Termination Provisions. We analyzed each contract's termination provisions, including: (i) the right to terminate for convenience and the applicable notice period, (ii) early termination fees, if any, (iii) termination for cause, including the applicable cure period and grounds for termination, and (iv) any provisions regarding the vendor's right to terminate.
Auto-Renewal Mechanics. For contracts containing auto-renewal provisions, we identified the renewal term (one-year, month-to-month, or two-year), the opt-out notice period, and the next upcoming auto-renewal date. This analysis is critical for Fairwater PM's post-closing vendor management planning.
Scope of Services and Performance Standards. We reviewed the scope of services under each contract to confirm that the services described are consistent with the current operational requirements of the applicable property and to identify any gaps or overlaps in service coverage. Performance standards, where specified, were noted.
Pricing. We analyzed each contract's pricing structure, including whether pricing is fixed, variable, or subject to CPI or other escalation provisions. Annual contract values were calculated for comparison against market benchmarks and for purposes of the portfolio-level financial summary.
Insurance and Indemnification. We reviewed each contract's insurance requirements (including minimum coverage limits, additional insured requirements, and certificate of insurance obligations) and indemnification provisions to confirm adequacy and compliance with the assumed loan documents.
Lender Compliance. Specifically, we compared the insurance and indemnification provisions in each contract against the minimum vendor insurance requirements imposed by the three lenders whose loan documents are being assumed in connection with the Transaction: Pinnacle Federal Bank, Veltrano Capital, and Sycamore Life Insurance. The results of this analysis are summarized in Section X below.
III. Portfolio-Wide Contract Summary Table
The following table provides a master summary of all sixty-three (63) service contracts currently in effect across the fourteen (14) properties in the Portfolio. Contracts are organized by property and numbered sequentially from 1 through 63. A complete version of this summary, with additional detail fields including vendor addresses, contact persons, CPI escalation provisions, SLA metrics, and insurance certificate status, is attached hereto as Exhibit A.
Distribution of Contracts by Property Type
The Portfolio is composed of ten (10) logistics/industrial properties and four (4) office properties. As expected, the distribution of service contracts reflects the more intensive service requirements of office properties relative to logistics properties:
• Logistics Properties (10 properties): 42 contracts (average of 4.2 contracts per property)
• Office Properties (4 properties): 21 contracts (average of 5.25 contracts per property)
Office properties require more intensive janitorial, elevator, security guard, and HVAC services than logistics properties, which accounts for the higher contract density. Additionally, the office properties tend to have higher per-contract annual values due to the increased scope and frequency of services.
Distribution of Contracts by State
Master Summary Table
Note: Due to the length of the full table, a condensed summary is presented below. The complete table with all data fields is provided in Exhibit A.
Note: Contracts numbered above are representative. For brevity, certain contracts at properties with fewer contracts are combined in the table above. The complete 63-contract schedule is set forth in Exhibit A. Annual contract values in this table are rounded. "COC" denotes change-of-control provision. "ETF" denotes early termination fee. "M2M" denotes month-to-month auto-renewal.
Aggregate Summary:
IV. Assignability Analysis
A. Entity-Level Transfer — General Principle
As noted in the Executive Summary, the acquisition is structured as a transfer of 100% of the membership interests in each of the fourteen (14) Target Entity LLCs. Each Target Entity is a single-purpose Delaware limited liability company formed to hold title to a single property in the Portfolio. Under this structure, the legal entity that is the named contracting party under each service contract — the Target Entity — remains the same entity before and after closing. Only the equity ownership of the Target Entity changes.
Under well-established principles of contract law, a change in the equity ownership of a contracting party does not, in and of itself, constitute an "assignment" of that party's contracts. The contracting party's legal identity, its rights, and its obligations under the contract remain unchanged. Accordingly, absent a specific contractual provision to the contrary — such as a change-of-control clause or an indirect-transfer restriction — the entity-level transfer of membership interests does not trigger assignment provisions or require vendor consent.
This principle has been recognized by courts across the relevant jurisdictions. See, e.g., Branmar Theatre Co. v. Branmar, Inc., 264 A.2d 526 (Del. Ch. 1970) (transfer of stock is not an assignment of the corporation's contract); PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090 (6th Cir. 1979) (change in stock ownership does not amount to assignment of corporate contracts absent specific contractual language). We are not aware of any contrary authority in the states of Georgia, Texas, Florida, Tennessee, or North Carolina that would alter this analysis.
Nevertheless, we have conducted a contract-by-contract analysis to identify any provisions that could be triggered by the entity-level transfer, including change-of-control clauses, indirect transfer restrictions, and broadly drafted anti-assignment provisions that might be interpreted to encompass changes in equity ownership.
B. Contracts with Express Assignability Provisions
Thirty-eight (38) of the sixty-three (63) contracts contain express provisions addressing assignability. These contracts fall into two subcategories:
Freely Assignable (29 contracts). Twenty-nine (29) contracts contain provisions permitting assignment by the contracting entity without requiring the consent of the vendor. These provisions are typically worded as follows: "This Agreement may be assigned by Owner to any successor owner of the Property or to any entity controlled by, controlling, or under common control with Owner, without the consent of Contractor." Under these provisions, even if the entity-level transfer were treated as an assignment (which, as discussed above, it is not), the transfer would be permitted without consent. No further action is required with respect to these contracts.
Consent Required (9 contracts). Nine (9) contracts require the vendor's consent for any assignment by the contracting entity. Typical language provides: "Neither party may assign this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, or delayed." Because the entity-level transfer does not technically constitute an "assignment" under these provisions, formal vendor consent is not legally required. However, as a matter of prudent practice and to foster a productive working relationship with these vendors going forward, we recommend that Fairwater PM provide written notification to each of these nine vendors explaining the nature of the transaction and requesting an acknowledgment of the vendor's understanding that the contract will continue in effect. Draft notification letters are included in Exhibit C.
The nine consent-required contracts are as follows:
Note: Contract numbers for the final two entries correspond to their numbers in the complete Exhibit A schedule.
C. Contracts with Change-of-Control or Indirect Transfer Provisions
Seven (7) contracts contain change-of-control or indirect transfer provisions that could be triggered by the entity-level acquisition. We have carefully reviewed the language of each provision and analyzed its applicability to the contemplated transaction. Our analysis is summarized below.
Security Services Contracts — Change-of-Control Notice Requirement (4 contracts). Four (4) contracts, all with Sentinel Guard Services Inc. for security guard and electronic monitoring services at the four office properties, contain a provision requiring thirty (30) days' prior written notice of any "change of control" of the contracting entity. The relevant provision reads:
"In the event of a Change of Control of Owner, Owner shall provide Contractor with written notice of such Change of Control not less than thirty (30) calendar days prior to the effective date thereof. For purposes of this Section, 'Change of Control' means any transaction or series of related transactions that results in a change in the identity of the person or entity that, directly or indirectly, controls or holds a majority of the economic interest in Owner."
The entity-level transfer of 100% of the membership interests in each Target Entity clearly constitutes a "Change of Control" as defined in these provisions. However, the consequence of a Change of Control under these contracts is limited to a notice requirement; the contracts do not provide for automatic termination, vendor consent, or any other remedy upon a Change of Control. We recommend that C&H prepare and deliver thirty (30) day prior written notice to Sentinel Guard Services Inc. at or promptly following closing, in compliance with these provisions. Given that Fairwater PM intends to assume these contracts post-closing, timely notice will ensure continuity of security services at the office properties.
The four contracts are:
Note: The Brickell Bay security contract (Contract No. 61) also contains this change-of-control notice provision and is included in the count of four, though it serves both guard and electronic monitoring functions under a single contract.
Elevator Maintenance Contracts — Indirect Change of Ownership Consent (3 contracts). Three (3) elevator maintenance contracts — at Buckhead Place (Peachtree Elevator Co. Inc.), Cool Springs (Nashville Elevator Services Inc.), and Brickell Bay (Southeast Elevator Corp.) — contain a provision requiring consent to any "direct or indirect change in ownership" of the property owner. The relevant provision in each of these contracts is substantially similar and reads:
"Owner shall not, without the prior written consent of Contractor, which consent shall not be unreasonably withheld, permit or cause any direct or indirect change in the ownership of Owner that results in a change in the identity of the managing member or controlling party of Owner."
Unlike the security services contracts discussed above, these provisions require consent, not merely notice. While we believe a strong argument can be made that this provision should not be triggered by the entity-level transfer (as the Target Entity itself remains the contracting party and the provision is arguably directed at changes in management rather than passive equity ownership), the safer course of action is to seek the vendors' consent. We note that (i) consent may not be unreasonably withheld under the express terms of each contract, (ii) Fairwater PM intends to continue these contracts post-closing, and (iii) elevator maintenance contracts are typically vendor-favorable in their negotiation dynamics, particularly given the limited number of qualified elevator service providers in most markets. We therefore recommend that C&H prepare and deliver consent request letters to each of the three elevator service vendors at closing or promptly thereafter.
The three contracts are:
None of the seven (7) contracts described above provides for automatic termination upon a change of control or indirect change in ownership. All require only notice or consent. In the event that consent is withheld by any elevator maintenance vendor (which we consider unlikely given the "not unreasonably withheld" standard), the contract would remain in effect by its terms, and the vendor's sole remedy would be an action for breach of the consent provision. We do not view this as a material risk.
D. Contracts Silent on Assignment
Eighteen (18) of the sixty-three (63) contracts are entirely silent on the subject of assignability. These contracts contain no assignment clause, no consent requirement, and no change-of-control or indirect transfer provision. Under the entity-level transfer structure, no action is legally required with respect to these contracts. The contracting entity remains the same, and the absence of an anti-assignment clause means that even a formal assignment would be permissible under general contract law principles (subject to any applicable limitations on assignment of personal services contracts, which are not relevant here).
Nevertheless, we recommend that Fairwater PM provide written notification to each of these eighteen vendors as a matter of good practice, primarily to update contact and billing information post-closing and to introduce Fairwater PM as the new property management team. Positive vendor relationships are an important component of effective property management, and proactive communication will facilitate a smooth transition.
E. Recommended Actions for Assignability
Based on the foregoing analysis, we recommend the following actions:
For the 9 consent-required contracts: C&H will prepare vendor notification letters explaining the entity-level transfer and requesting written acknowledgment (not formal consent, as the entity-level transfer does not technically trigger the assignment clause) that the vendor understands the contract will continue in effect. These letters will be substantially in the form attached as Exhibit C, with appropriate modifications for the consent-required context.
For the 4 security services contracts with change-of-control notice provisions: C&H will prepare change-of-control notice letters to Sentinel Guard Services Inc. for delivery at or promptly following closing, in compliance with the thirty (30) day notice requirement. Because closing is scheduled for June 6, 2024, and the notices need only be delivered within the 30-day period, delivery on the business day following closing (June 7, 2024) will satisfy the contractual requirement on a going-forward basis.
For the 3 elevator maintenance contracts with indirect change of ownership consent provisions: C&H will prepare consent request letters addressed to each elevator vendor for delivery at closing or promptly thereafter. The letters will describe the nature of the entity-level transfer, confirm the intention to continue the contract without modification, and request written consent to the indirect change in ownership.
For all contracts, including the 18 silent contracts: Vendor notification letters in the form attached as Exhibit C will be sent to all vendors, to be distributed on or promptly following June 7, 2024 (the first business day following the June 6, 2024 closing date), coordinated with the tenant notification letters being sent on the same date.
V. Termination Provisions Analysis
A. Termination for Convenience
We have reviewed the termination-for-convenience provisions in each of the sixty-three (63) contracts. Our findings are summarized below.
Contracts with Express Termination for Convenience (49 contracts). Forty-nine (49) of the sixty-three (63) contracts contain an express termination-for-convenience provision, permitting the property owner (or contracting entity) to terminate the contract at any time during the term, without cause, upon the delivery of prior written notice to the vendor. The required notice periods are as follows:
The thirty-day notice period is the most common, appearing in thirty-nine (39) contracts. This is consistent with market practice for service contracts in the commercial real estate industry. Seven (7) contracts require sixty (60) days' notice, typically for higher-value service categories such as HVAC maintenance and janitorial services, where a longer transition period is warranted. Three (3) contracts require ninety (90) days' notice; these are the three elevator maintenance contracts at Buckhead Place, Cool Springs, and Brickell Bay, reflecting the specialized nature of elevator maintenance services and the longer lead time required to engage a replacement provider.
Contracts Without Express Termination for Convenience (14 contracts). Fourteen (14) contracts do not contain an express termination-for-convenience provision. However, these contracts fall into one of two categories:
(a) Month-to-month or holdover arrangements (9 contracts): Nine (9) of these contracts are currently operating on a month-to-month or holdover basis, either because they have auto-renewed into a month-to-month period or because the initial term has expired and the parties have continued performance without executing a renewal. Under general contract principles applicable in all five states, a month-to-month contract may be terminated by either party at the end of any monthly period upon thirty (30) days' prior written notice.
(b) Short-term or seasonal contracts (5 contracts): Five (5) contracts are short-term arrangements (typically seasonal, such as the snow and ice removal contracts in Tennessee) that will expire by their terms within the near term. Termination for convenience is not necessary, as the contracts will naturally lapse.
Accordingly, all sixty-three (63) contracts are effectively terminable by the contracting entity, either pursuant to an express termination-for-convenience provision or through the natural expiration of the contract term or the termination of a month-to-month holdover arrangement.
B. Early Termination Fees
Eight (8) of the sixty-three (63) contracts contain early termination fee provisions. We have analyzed these provisions in detail, with particular attention to the twelve (12) contracts recommended for termination, to confirm that the aggregate termination costs are de minimis.
Remaining-payments formula (5 contracts). Five (5) contracts impose an early termination fee equal to the aggregate of the remaining monthly payments through the end of the then-current term. This formula is relevant only if the contract is terminated before the natural expiration of its initial or renewal term and is not triggered by a termination at the end of a renewal term after proper opt-out notice. All five of these contracts are recommended for assumption, not termination, and none is scheduled for mid-term termination. However, should Fairwater PM decide to terminate any of these contracts in the future before the end of the then-current term, the remaining-payments formula would apply. The five contracts are the HVAC maintenance contracts with ThermalCore Mechanical Inc. at Fairfield I, Fairfield II, Westlake, Alliance, and Southport (Contract Nos. 4, 9, 14, 23, and 32, respectively), each with a stated early termination fee of $1,500 if terminated before term expiration.
Flat termination fee (3 contracts). Three (3) contracts impose a flat early termination fee, regardless of the remaining term, as follows:
Of these three contracts, two (Contract Nos. 17 and 50) are among the twelve contracts recommended for termination. The third (Contract No. 10, Apex Waste Solutions) is recommended for assumption.
Impact on recommended terminations. Of the twelve (12) contracts recommended for termination, only three (3) carry any early termination fee. The aggregate estimated early termination fees for the recommended terminations are as follows:
Note: The $3,000 subtotal represents a conservative estimate for two waste management contracts (Nos. 13 and 18) that may technically be in mid-term if terminated before the next renewal date, though both are operating on a month-to-month auto-renewal basis and are therefore terminable without fee on 30 days' notice. The $4,200 total is a worst-case aggregate estimate.
The aggregate estimated early termination fees of approximately $4,200 are de minimis in the context of a transaction of this magnitude and do not warrant further negotiation or delay.
C. Termination for Cause
All sixty-three (63) contracts contain termination-for-cause provisions, permitting either party to terminate the contract in the event of a material breach or default by the other party. The grounds for termination for cause are generally consistent across the contracts and include:
(a) Material breach of any term or condition of the contract;
(b) Failure to perform services in accordance with the contract specifications or applicable law;
(c) Failure to maintain required insurance coverage or to provide required certificates of insurance;
(d) Insolvency, bankruptcy, or assignment for the benefit of creditors by either party;
(e) Failure to comply with applicable health, safety, or environmental laws or regulations; and
(f) Failure to cure a default within the applicable cure period after receipt of written notice.
Cure periods for termination for cause range from ten (10) to thirty (30) calendar days after receipt of written notice, with the majority of contracts providing a fifteen (15) or thirty (30) day cure period. No contracts provide for immediate termination without notice or cure, except in the case of insolvency, bankruptcy, or willful misconduct.
Current Default Status. Based on our review of the contracts, the Seller's disclosure schedules delivered pursuant to PSA Section 5.9, and representations made by Sean Kilpatrick of Argyle Property Services LLC in an email dated March 22, 2024, no defaults or pending cure periods have been identified with respect to any of the sixty-three (63) contracts as of the date of this memorandum. All contracts are current, and all vendor invoices have been paid in the ordinary course of business.
VI. Auto-Renewal Analysis
A. Contracts with Auto-Renewal Provisions
Forty-one (41) of the sixty-three (63) contracts contain auto-renewal provisions. The distribution of auto-renewal terms is as follows:
The twenty-eight (28) contracts with one-year auto-renewal terms are the most common configuration and require the most careful monitoring of opt-out dates. The nine (9) contracts with month-to-month auto-renewal terms provide maximum flexibility, as they may be terminated at the end of any monthly period upon the required notice. The four (4) contracts with two-year auto-renewal terms are the three elevator maintenance contracts (Contract Nos. 41, 55, and 60) and one roofing maintenance contract (Contract No. 27, Lakeland Crossings), reflecting the longer-term commitments typical of these specialized service categories.
The remaining twenty-two (22) contracts either do not contain auto-renewal provisions (because they have a fixed term with no renewal mechanism), are seasonal contracts, or are contracts that have already been renewed pursuant to a separate written amendment.
B. Opt-Out Notice Periods
For contracts with auto-renewal provisions, the opt-out notice period — the period of advance notice required to prevent automatic renewal — is a critical parameter for Fairwater PM's post-closing vendor management planning. The distribution of opt-out notice periods is as follows:
Critical finding: Three (3) of the twelve contracts recommended for termination have upcoming auto-renewal dates within sixty (60) days of the scheduled closing date of June 6, 2024. If Fairwater PM does not deliver opt-out notices promptly following closing, these contracts will automatically renew for an additional term (one year or month-to-month, depending on the contract), potentially requiring the payment of early termination fees if Fairwater PM wishes to terminate before the end of the renewed term. The three contracts requiring urgent attention are:
With respect to Contract No. 40, the opt-out deadline of May 1, 2024, falls prior to the closing date. However, because this contract auto-renews on a month-to-month basis, each month constitutes a new renewal period, and an opt-out notice delivered in June 2024 will be effective to prevent renewal for July 2024 and beyond. Contract No. 62 also auto-renews on a month-to-month basis and is subject to the same analysis. Contract No. 21 has an August 31, 2024, auto-renewal date, which falls within the ninety-day transition services period and permits timely opt-out.
We recommend that Fairwater PM deliver opt-out notices for these three contracts within the first five (5) business days following closing (i.e., by June 13, 2024 at the latest).
C. Calendar of Upcoming Auto-Renewal Dates
A detailed calendar of all auto-renewal dates for the forty-one (41) contracts with auto-renewal provisions is attached hereto as Exhibit D. That calendar highlights all contracts with auto-renewal dates falling within 120 days of the June 6, 2024 closing date and identifies the required opt-out notice date for each. The following is a summary of the contracts requiring attention within the 120-day post-closing window (June 6 through October 4, 2024):
Fairwater PM should establish a contract management calendar system to track all auto-renewal dates and opt-out deadlines on an ongoing basis. C&H will include this recommendation in the Post-Closing Obligations Tracker referenced in Section XII below.
VII. Contracts with Argyle Property Services LLC (Seller Affiliate)
A. Property Management Agreements
Each of the fourteen (14) Target Entities is party to a property management agreement with Argyle Property Services LLC, an affiliate of Greystone Meridian Partners, located at 3300 Peachtree Road NE, Suite 2200, Atlanta, GA 30326 (portfolio manager: Sean Kilpatrick). Under these agreements, Argyle has served as the property manager for all fourteen Properties since the inception of Greystone Meridian's ownership, with responsibility for day-to-day operations, tenant relations, vendor management, financial reporting, and capital project oversight.
These fourteen (14) property management agreements are being superseded by the Transition Services Agreement (PSA Exhibit L), which takes effect at closing and provides for the following:
(a) Transition Period: Ninety (90) days, commencing on the closing date of June 6, 2024, and expiring on or about September 4, 2024.
(b) Fee: $375,000 per month, payable in arrears on the first business day of each month during the transition period. Total cost: $1,125,000.
(c) Scope of Services: During the transition period, Argyle will continue to manage vendor relationships, supervise vendor performance, respond to tenant service requests, oversee ongoing capital projects, and cooperate with Fairwater PM in the orderly transition of all property management functions.
(d) Post-Transition: Following the expiration of the transition period, Fairwater Property Management LLC (7200 Chesapeake Parkway, Suite 1150, Columbia, MD 21044; SVP Operations: Leah Torrance) will assume direct property management responsibility for all fourteen Properties.
Important Note: These fourteen (14) property management agreements are not counted among the sixty-three (63) service contracts that are the subject of this memorandum. The property management agreements are addressed separately in the PSA (Section 7.5 — Property Management Transition) and the Transition Services Agreement (PSA Exhibit L). They are not listed on PSA Exhibit I (List of Service Contracts), and they will be terminated by their own terms upon the closing of the Transaction and the commencement of the Transition Services Agreement.
B. Affiliate Sub-Contracts
In addition to the fourteen property management agreements, Argyle has sub-contracted with four (4) affiliated or preferred vendors for certain services at selected properties. These four sub-contracts are included among the sixty-three (63) service contracts listed on PSA Exhibit I and have been reviewed as part of this engagement. The four contracts are:
All four of these vendors are affiliates of Argyle Property Services LLC. "Argyle Preferred Grounds LLC," "Argyle Preferred Cleaning LLC," and "Argyle Preferred Parking LLC" are each wholly owned subsidiaries or d/b/a entities of Argyle, as confirmed by Sean Kilpatrick in his email of March 22, 2024, and as disclosed in Seller's response to Buyer's due diligence request list item 7.4(f) (Affiliate Vendor Disclosure).
All four of these sub-contracts are recommended for termination post-closing for the following reasons:
(a) Preferred vendor replacement. Fairwater PM has existing relationships with preferred national vendors for each of the service categories covered by these sub-contracts (landscaping, grounds maintenance, supplemental janitorial, and parking lot maintenance). Fairwater PM's national vendor contracts provide comparable or superior service levels at competitive pricing.
(b) Conflict of interest. The continued engagement of Argyle affiliates as service vendors post-closing creates a potential conflict of interest. Following the transition period, Argyle will no longer serve as the property manager, and there is no operational justification for retaining Argyle-affiliated vendors when the relationship with Argyle is being wound down.
(c) Ease of termination. All four contracts are terminable on thirty (30) days' notice without penalty. The termination of these contracts is straightforward and will not result in any service disruption, provided that Fairwater PM engages replacement vendors during the ninety-day transition period.
The termination of these four contracts is discussed further in Section VIII below.
VIII. Contracts Recommended for Termination (12 Contracts)
A. Summary Table — Recommended Terminations
The following table summarizes the twelve (12) contracts recommended for termination post-closing. Each contract has been analyzed for termination provisions, early termination fees, vendor replacement alternatives, and timing considerations.
Note: Contract No. 21 (Alliance supplemental grounds maintenance) appears in both the Argyle affiliate category and the duplicative services category. It is counted only once in the total of 12 recommended terminations.
B. Detailed Analysis of Each Recommended Termination
Contracts 1–4: Argyle-Affiliated Vendor Contracts (Contract Nos. 8, 21, 40, 62)
These four contracts are with vendors that are affiliates or wholly owned subsidiaries of Argyle Property Services LLC, the Seller-affiliated property manager. The services covered by these contracts — landscaping at Fairfield Logistics Center II, supplemental grounds maintenance at Alliance Commerce Center, supplemental janitorial services at Buckhead Place Office Tower, and parking lot maintenance at Peachtree Corners Logistics Center — are standard property services for which Fairwater PM maintains national vendor relationships through its preferred vendor program.
Landscaping at Fairfield II (Contract No. 8 — Argyle Preferred Grounds LLC). This contract, dated May 1, 2023, provides landscaping services at Fairfield Logistics Center II for an annual fee of $74,000. It auto-renews for successive one-year terms unless either party provides thirty (30) days' opt-out notice. The contract is terminable for convenience on thirty (30) days' notice without penalty. Fairwater PM has engaged Magnolia Grounds Management LLC (the vendor for Fairfield Logistics Center I under Contract No. 1) to provide landscaping services at both Fairfield properties post-transition, at a combined annual rate of $132,000, representing a modest savings relative to the current combined cost of $146,000 ($72,000 + $74,000) and the benefit of consolidated vendor management.
Supplemental Grounds Maintenance at Alliance (Contract No. 21 — Argyle Preferred Grounds LLC). This contract, dated September 1, 2023, provides supplemental grounds maintenance services at Alliance Commerce Center for an annual fee of $38,000. It auto-renews on a month-to-month basis and is terminable on thirty (30) days' notice without penalty. This contract is duplicative with the primary landscaping contract at Alliance (Contract No. 20, Lone Star Landscapes Inc., $96,000/year), which covers all standard grounds maintenance services. The supplemental contract was entered into by Argyle to address seasonal peak-period grounds work and is not necessary on an ongoing basis. Fairwater PM intends to negotiate an expanded scope with Lone Star Landscapes to incorporate seasonal work at a lower incremental cost.
Supplemental Janitorial at Buckhead Place (Contract No. 40 — Argyle Preferred Cleaning LLC). This contract, dated June 1, 2023, provides supplemental janitorial services at Buckhead Place Office Tower for an annual fee of $84,000. It auto-renews on a month-to-month basis and is terminable on thirty (30) days' notice without penalty. The primary janitorial contract at Buckhead Place is with Premier Janitorial Partners LP (Contract No. 39, $216,000/year), which provides comprehensive janitorial services for the building. The supplemental contract was added by Argyle to provide additional cleaning staff during evening hours and weekends. Fairwater PM intends to negotiate an expanded scope with Premier Janitorial Partners LP to incorporate the supplemental evening and weekend services under the primary contract at a cost-effective rate.
Parking Lot Maintenance at Peachtree Corners (Contract No. 62 — Argyle Preferred Parking LLC). This contract, dated July 1, 2023, provides parking lot maintenance and striping services at Peachtree Corners Logistics Center for an annual fee of $32,000. It auto-renews on a month-to-month basis and is terminable on thirty (30) days' notice without penalty. Fairwater PM will engage its preferred national parking lot maintenance vendor to provide these services post-transition.
Termination recommendation: All four contracts should be terminated effective at the end of the ninety-day Transition Services Agreement period (approximately September 4, 2024), with termination notices delivered no later than August 5, 2024 (thirty days prior). This timing allows Argyle to continue supervising vendor performance during the transition period and provides Fairwater PM with sufficient lead time to onboard replacement vendors.
Contracts 5–8: Vendor Replacement for Cost Savings (Contract Nos. 13, 18, 17, 50)
These four contracts are recommended for termination because Fairwater PM's national vendor contracts offer significant cost savings relative to the current vendor pricing. The aggregate estimated annual savings from vendor replacement across these four contracts is approximately $185,000, representing a meaningful reduction in operating expenses.
Waste Management at Westlake (Contract No. 13 — Capital City Waste Mgmt Inc.). This contract, dated August 1, 2022, provides waste management and recycling services at Westlake Distribution Hub for an annual fee of $56,000. The contract auto-renews on a month-to-month basis and is terminable on thirty (30) days' notice without penalty. Fairwater PM's national waste management vendor (under a master services agreement covering Fairwater's existing portfolio of over 120 properties) will provide comparable services at an estimated annual cost of $42,000, representing savings of approximately $14,000 per year. The national vendor's pricing reflects volume discounts and standardized service levels across the Fairwater portfolio.
Waste Management at Katy (Contract No. 18 — Capital City Waste Mgmt Inc.). This contract, also with Capital City Waste Management, provides waste management services at Katy Freeway Logistics Park for an annual fee of $52,000 on a month-to-month auto-renewal basis. The same national vendor replacement will yield estimated annual savings of approximately $12,000.
Pest Control at Katy (Contract No. 17 — Gulf Coast Pest Solutions LP). This contract, dated June 1, 2023, provides pest control services at Katy Freeway Logistics Park for an annual fee of $14,400. The contract has a one-year auto-renewal term and carries a flat early termination fee of $500. Fairwater PM's preferred pest control vendor will provide services at an estimated annual cost of $10,400, representing savings of approximately $4,000 per year (net of the one-time $500 ETF).
Window Washing at SouthPark (Contract No. 50 — CrystalView Window Svcs LLC). This contract, dated February 1, 2023, provides window washing services at SouthPark Corporate Center for an annual fee of $46,000. The contract has a one-year auto-renewal term and carries a flat early termination fee of $700. Fairwater PM's preferred window washing vendor will provide services at an estimated annual cost of $38,000, representing savings of approximately $8,000 per year (net of the one-time $700 ETF).
Termination recommendation: Termination notices for all four contracts should be delivered within thirty (30) days of closing (i.e., by July 6, 2024). Given the short notice periods (thirty days for all four), the terminations will be effective by early August 2024, well within the ninety-day transition period. Fairwater PM should coordinate with Leah Torrance to ensure replacement vendors are engaged and operational before the termination effective dates.
Aggregate financial impact:
Contracts 9–10: Duplicative Services (Contract Nos. 44 and 21)
Two contracts provide services that overlap with other existing contracts at the same property, resulting in unnecessary duplication and expense.
Supplemental Security Monitoring at Buckhead Place (Contract No. 44 — Viewpoint Security Monitoring). This contract, dated March 1, 2023, provides supplemental electronic security monitoring services at Buckhead Place Office Tower for an annual fee of $24,000. The contract auto-renews for successive one-year terms and is terminable on thirty (30) days' notice without penalty. Buckhead Place is already served by two Sentinel Guard Services contracts (Contract Nos. 42 and 43) providing comprehensive security guard services ($288,000/year) and electronic monitoring ($48,000/year), respectively. The Viewpoint contract was added by Argyle to supplement Sentinel's electronic monitoring during a period in which Sentinel was upgrading its monitoring equipment; however, the Sentinel upgrade was completed in October 2023, and the Viewpoint contract is now duplicative. Fairwater PM confirms that the Sentinel electronic monitoring contract provides adequate coverage for the building, and the supplemental Viewpoint contract is not needed.
Supplemental Grounds Maintenance at Alliance (Contract No. 21). As discussed in Section VIII.B above (Contracts 1–4), this contract with Argyle Preferred Grounds LLC is duplicative with the primary landscaping contract at Alliance Commerce Center (Contract No. 20, Lone Star Landscapes Inc.).
Termination recommendation: Both contracts should be terminated immediately post-closing. Termination notices should be delivered on or promptly following June 7, 2024, with effective termination dates of July 7, 2024 (thirty days from notice). No early termination fees apply.
Contracts 11–12: Below-Market Service Quality (Contract Nos. 57 and 27)
Two contracts are recommended for termination based on below-market service quality, as identified through the Property Condition Assessment ("PCA") reports prepared by Rampart Building Sciences, Inc. (Alan Westbrook, PE) in connection with Buyer's due diligence.
HVAC Maintenance at Cool Springs (Contract No. 57 — Ridgeline HVAC Solutions LLC). This contract, dated June 1, 2022, provides HVAC maintenance services at Cool Springs Office Park for an annual fee of $88,000. The contract auto-renews for successive one-year terms and is terminable for convenience on thirty (30) days' notice without penalty.
The PCA report for Cool Springs Office Park, dated March 15, 2024, identified approximately $620,000 in immediate repairs related to HVAC systems, including replacement of two rooftop air handling units that have exceeded their useful life, repair of multiple VAV box actuators, and remediation of condensate drainage issues that have caused water damage to ceiling tiles in the second-floor tenant spaces. The PCA report specifically noted that "the HVAC maintenance program at this property appears to have been inadequate relative to the age and complexity of the mechanical systems," and identified evidence of deferred preventive maintenance, including missing or outdated filter change records, absence of coil cleaning documentation for the prior two quarterly cycles, and failure to perform annual refrigerant leak checks as required by EPA regulations and the manufacturer's maintenance specifications.
While we do not opine on the engineering merits of the PCA findings, the correlation between the vendor's maintenance program and the identified capital repair needs is a significant concern. Fairwater PM intends to engage its preferred HVAC maintenance vendor, which serves over eighty (80) properties in the Fairwater portfolio, to provide comprehensive HVAC preventive maintenance services at Cool Springs. The preferred vendor's pricing is expected to be comparable to the current contract value, but with a significantly more rigorous maintenance protocol that should reduce future capital repair exposure.
Roofing Maintenance at Lakeland (Contract No. 27 — Ridgeline Roofing Services Inc.). This contract, dated November 1, 2021, provides roofing maintenance services at Lakeland Crossings Industrial for an annual fee of $48,000. The contract auto-renews for successive two-year terms (next auto-renewal: October 31, 2024) and is terminable for convenience on sixty (60) days' notice without penalty.
The PCA report for Lakeland Crossings Industrial, dated March 8, 2024, identified approximately $380,000 in immediate repairs related to the roofing system, including patching and recoating of approximately 15,000 square feet of the TPO membrane roof, replacement of damaged flashing at four roof penetrations, and repair of ponding conditions at two low areas. The PCA report noted that "the roof maintenance program does not appear to have included regular inspections or preventive maintenance at the frequency recommended by the membrane manufacturer," and identified evidence that the last comprehensive roof inspection was conducted more than eighteen months prior, notwithstanding the contract's requirement for semi-annual inspections.
Fairwater PM intends to engage its preferred roofing maintenance vendor to provide services at Lakeland. A sixty (60) day termination notice should be delivered within thirty (30) days of closing to ensure termination is effective before the October 31, 2024 auto-renewal date.