CALDERWOOD & HARKNESS LLP 450 Park Avenue, 28th Floor New York, New York 10022
MEMORANDUM ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
Matter Number: 1036-00004
May 8, 2024
TO: Douglas Fairchild, Partner, Calderwood & Harkness LLP
FROM: Grace Nakamura, Lead Associate, Calderwood & Harkness LLP
CC: Angela Fontaine, Partner, Calderwood & Harkness LLP Rafael Dominguez, Associate, Calderwood & Harkness LLP Camille Oduya, In-House Real Estate Counsel, Fairwater Real Estate Investment Trust
RE: Estoppel Certificate Review — Material Discrepancies Identified in Six (6) Tenant Estoppel Certificates; Fairwater Real Estate Investment Trust Acquisition of Greystone Meridian Partners Fund III, L.P. 14-Property Sun Belt Logistics & Office Portfolio
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I. Executive Summary
The purpose of this memorandum is to flag six (6) tenant estoppel certificates received to date that contain material discrepancies when compared against the rent roll attached as Exhibit H to the Purchase and Sale Agreement dated February 28, 2024 (the "PSA"), between Greystone Meridian Partners Fund III, L.P. ("Seller" or "GMP Fund III") and Fairwater Real Estate Investment Trust ("Buyer" or "Fairwater"). These discrepancies involve variances in rental amounts, lease expiration dates, and security deposit balances, each of which is described in detail below and, in our assessment, requires clarification and reconciliation by the Seller before Buyer can accept the estoppel certificates as satisfying the applicable condition precedent to closing under the PSA.
Under Section 7.2 of the PSA, the Seller is required to deliver estoppel certificates from tenants representing at least eighty percent (80%) of in-place annual base rent ("ABR"), equating to no less than $59,840,000 of $74,800,000 total portfolio ABR, and from every tenant occupying 25,000 or more rentable square feet (each, a "Major Tenant"). All such estoppel certificates must be in form reasonably acceptable to Buyer and Buyer's lenders — Pinnacle Federal Bank, N.A., Veltrano Capital Lending Corp., and Sycamore Life Insurance Company — and must substantially conform to the form attached as PSA Exhibit E (Form of Tenant Estoppel Certificate).
As of the date of this memorandum, estoppel certificates have been received from tenants representing approximately seventy-eight percent (78%) of ABR, constituting 62 of the portfolio's 87 total leases. The estoppel delivery deadline under the PSA, as amended by the First Amendment to Purchase and Sale Agreement dated April 12, 2024 (the "First Amendment"), is May 15, 2024. Accordingly, only seven (7) calendar days remain for Seller to deliver the remaining certificates needed to satisfy the 80% ABR threshold and the Major Tenant delivery requirement.
Of the 62 estoppel certificates received and reviewed by this firm to date, 56 have been reviewed and approved without material discrepancy. The remaining six (6) contain discrepancies from the Exhibit H rent roll that require Seller clarification and, in our recommendation, supplemental disclosure by Seller to reconcile the discrepancies before Buyer can accept the estoppel certificates as satisfying the PSA condition precedent. The discrepancies identified fall into three principal categories:
(i) Rent Amount Variances — Two (2) estoppel certificates reflect current base rent figures that differ from the corresponding Exhibit H rent roll figures, one showing an increase of approximately 2.0% and the other showing a decrease of approximately 2.6%;
(ii) Lease Expiration Date Discrepancies — Two (2) estoppel certificates report lease expiration dates that deviate from the rent roll, one by twelve (12) months (longer) and the other by three (3) months (shorter); and
(iii) Security Deposit Amount Variances — Two (2) estoppel certificates reflect security deposit balances that diverge from the rent roll, one showing a reduction of approximately 33.3% and the other showing an increase of approximately 33.3%.
Simultaneously with the issuance of this memorandum, a letter has been transmitted to Blackridge Hayes LLP, Seller's outside counsel, at the attention of Nathaniel Pryce, Esq. and Thomas Keating, Esq., identifying each of the six discrepancies in detail and requesting supplemental disclosure, supporting documentation, and reconciliation by no later than May 13, 2024 — two business days before the estoppel delivery deadline.
This memorandum sets forth the background and PSA framework governing estoppel delivery (Section II), a detailed analysis of each discrepancy (Section III), a summary table (Section IV), an assessment of the impact on closing conditions and the ABR threshold (Section V), a description of our communication with Seller's counsel (Section VI), and our recommendations and proposed next steps (Section VII).
II. Background and PSA Requirements
A. Transaction Overview
Fairwater Real Estate Investment Trust, a Maryland real estate investment trust, is acquiring one hundred percent (100%) of the membership interests in fourteen (14) single-purpose Delaware limited liability companies (collectively, the "Target Entities") from Greystone Meridian Partners Fund III, L.P., a Delaware limited partnership. The transaction is structured as an acquisition of equity interests in the Target Entities rather than a direct asset purchase, with each Target Entity serving as the fee owner and operating entity for a single property in the portfolio.
The aggregate purchase price for the membership interests is $1,100,000,000 (One Billion One Hundred Million Dollars). The capital structure contemplated by the PSA and approved by the parties is as follows:
• Assumed Mortgage Debt: $612,000,000, comprised of:
• Pinnacle Federal Bank, N.A.: $421,600,000 (secured by eleven (11) of the fourteen (14) portfolio properties pursuant to a cross-collateralized and cross-defaulted mortgage loan originated June 14, 2021);
• Veltrano Capital Lending Corp.: $142,300,000 (secured by two (2) logistics properties pursuant to a mortgage loan originated March 28, 2022); and
• Sycamore Life Insurance Company: $48,100,000 (secured by one (1) office property pursuant to a fixed-rate mortgage loan originated September 15, 2020).
• Cash Equity at Closing: $488,000,000, payable by wire transfer of immediately available federal funds to the escrow account established with Commonwealth National Title Insurance Company.
The portfolio comprises fourteen (14) properties located across five (5) Sun Belt states — Georgia, Texas, Florida, Tennessee, and North Carolina — totaling approximately 5,224,000 rentable square feet ("RSF"). The portfolio is subject to eighty-seven (87) leases, with a weighted-average occupancy rate of approximately 93.2% and in-place annual base rent of $74,800,000 as reported on the Exhibit H rent roll (dated as of December 31, 2023). The portfolio includes a mix of logistics, warehouse, distribution, and Class A/B office properties, reflecting GMP Fund III's Sun Belt value-add investment strategy.
The key milestones under the PSA, including the First Amendment, are as follows:
• PSA Execution: February 28, 2024
• Earnest Money Deposit: $22,000,000, deposited with Commonwealth National Title Insurance Company on March 4, 2024 (non-refundable following expiration of the Due Diligence Period, subject to Seller default and certain specified conditions)
• Due Diligence Period Expiration: April 15, 2024 (extended from March 31, 2024 by the First Amendment)
• Estoppel and SNDA Delivery Deadline: May 15, 2024
• Scheduled Closing Date: May 31, 2024
B. Estoppel Certificate Requirements Under the PSA
The PSA imposes detailed requirements on the Seller with respect to the delivery of tenant estoppel certificates, which serve as a condition precedent to Buyer's obligation to close. The relevant provisions are summarized below.
Section 7.2(a) — ABR Coverage Threshold. Section 7.2(a) of the PSA requires Seller to deliver to Buyer, on or before the estoppel delivery deadline, estoppel certificates from tenants whose leases, in the aggregate, represent at least eighty percent (80%) of total in-place annual base rent across the portfolio. Based on the Exhibit H rent roll reflecting total in-place ABR of $74,800,000, this threshold equates to $59,840,000. The PSA expressly provides that estoppel certificates that are not in form reasonably acceptable to Buyer and Buyer's lenders shall not be counted toward the 80% ABR threshold.
Section 7.2(b) — Major Tenant Requirement. In addition to the aggregate ABR coverage threshold, Section 7.2(b) requires Seller to obtain and deliver estoppel certificates from every "Major Tenant," defined in the PSA as any tenant occupying 25,000 or more RSF in any property in the portfolio. As of the Exhibit H rent roll date, there are twenty-three (23) Major Tenants across the portfolio. The Major Tenant estoppel requirement is independent of the 80% ABR threshold; failure to deliver a compliant estoppel from even one Major Tenant would constitute a failure of this condition precedent, regardless of whether the aggregate ABR threshold is otherwise satisfied.
Form and Content Requirements. Each estoppel certificate must substantially conform to the form attached as PSA Exhibit E (Form of Tenant Estoppel Certificate) and must be reasonably acceptable to Buyer and to Buyer's lenders — Pinnacle Federal Bank, N.A., Veltrano Capital Lending Corp., and Sycamore Life Insurance Company — and their respective counsel. The required content of each estoppel certificate includes, without limitation:
(a) Confirmation of lease terms, including commencement date, current expiration date, and any renewal or extension options (whether exercised or unexercised);
(b) Current monthly and annual base rent;
(c) Amount of any security deposit held by the landlord, including whether the deposit is held in the form of cash, a letter of credit, or other instrument;
(d) Any prepaid rent;
(e) Outstanding landlord obligations, including tenant improvement allowances, work letters, or other unfulfilled commitments;
(f) Any current or pending defaults by either landlord or tenant, including any defaults that have been cured but for which a notice was issued;
(g) Any offsets, claims, defenses, or credits against rent; and
(h) Confirmation that the lease, together with any identified amendments, constitutes the entire agreement between the landlord and tenant with respect to the leased premises.
Reference Rent Roll. The baseline against which estoppel certificate contents are compared is the rent roll attached to the PSA as Exhibit H (the "Rent Roll"), which is dated as of December 31, 2023. Section 5.1(q) of the PSA contains Seller's representation and warranty that the Exhibit H rent roll is true, correct, and complete in all material respects as of the date indicated therein. Any material discrepancy between a tenant's estoppel certificate and the Exhibit H rent roll may implicate Seller's representation under Section 5.1(q) and must be reconciled prior to acceptance by Buyer and Buyer's lenders.
C. Estoppel Tracking Status (as of May 8, 2024)
Calderwood & Harkness LLP maintains a comprehensive Estoppel Tracking Spreadsheet (the "Tracking Spreadsheet"), which is updated daily and circulated to the deal team, Fairwater's in-house counsel, and Buyer's lenders' counsel. The current status is summarized below.
Total Leases: 87 leases across 14 properties, representing aggregate in-place ABR of $74,800,000.
Transmittal. Estoppel certificate request packages were sent to all 87 tenants by the Seller through its property management company, Argyle Property Services LLC, under the direction of Sean Kilpatrick, Portfolio Manager. The initial transmittal occurred on or about March 1, 2024. A formal transmittal letter was sent by Calderwood & Harkness LLP to Blackridge Hayes LLP on March 4, 2024, enclosing the form of estoppel certificate (PSA Exhibit E) along with instructions for completion and return.
Certificates Received to Date: As of May 8, 2024, approximately 62 of the 87 estoppel certificates have been received, representing approximately 78% of in-place ABR ($58,344,000 of $74,800,000). This figure is approximately two percentage points (2%) below the required 80% threshold of $59,840,000.
Certificates Remaining Outstanding: Approximately 25 estoppel certificates remain outstanding, representing approximately 22% of in-place ABR ($16,456,000). The Seller, through Argyle Property Services LLC, has confirmed that follow-up requests have been sent to all 25 outstanding tenants, and additional certificates are expected to be delivered in the remaining seven (7) days before the May 15, 2024 deadline. Based on current projections and Seller's representations, Seller anticipates meeting the 80% threshold and the Major Tenant requirement on or before the deadline, though this remains uncertain and is subject to tenant cooperation.
Review Status. Of the 62 estoppel certificates received:
• 56 certificates have been reviewed and approved by Calderwood & Harkness LLP without material discrepancy. These certificates are consistent with the Exhibit H rent roll and conform substantially to the Exhibit E form. They have been circulated to Buyer's lenders' counsel for independent review.
• 6 certificates contain discrepancies from the Exhibit H rent roll that, in our assessment, are material and require resolution before Buyer can accept them as satisfying the PSA condition precedent. These six discrepancies are the subject of the detailed analysis that follows in Section III of this memorandum.
III. Detailed Analysis of Six (6) Discrepant Estoppel Certificates
Set forth below is a detailed analysis of each of the six (6) estoppel certificates identified as containing material discrepancies when compared against the Exhibit H rent roll. For each discrepancy, we identify the property, the Target Entity, the tenant, the nature of the variance, the potential explanation, and our recommendation.
A. Discrepancy No. 1 — Rent Amount Variance
Property: Katy Freeway Logistics Park, 22600 Katy Freeway, Katy, Texas 77449
Target Entity: GMP Katy LLC, a Delaware limited liability company (EIN: 84-2415710)
Tenant: Zynvaro Distribution Holdings LLC
Lease Details per Exhibit H Rent Roll:
• Premises: Approximately 538,000 RSF (entire building)
• Annual Base Rent: $7,532,000 ($14.00/RSF)
• Monthly Base Rent: $627,666.67
• Lease Commencement: September 1, 2019
• Lease Expiration: August 31, 2029
• Security Deposit: $376,600
• Renewal Options: Two (2) five-year renewal options at fair market value
Estoppel Certificate Statement: The estoppel certificate executed by Zynvaro Distribution Holdings LLC and dated April 22, 2024, states current monthly base rent of $640,233.33, which annualizes to $7,682,800, or approximately $14.28/RSF.
Variance: The annualized rent reflected in the estoppel certificate exceeds the Exhibit H rent roll figure by $150,800 per annum ($7,682,800 vs. $7,532,000), representing an increase of approximately 2.0% above the rent roll figure.
Potential Explanation: The most likely explanation for this discrepancy is that a contractual rent escalation under the Mercer Distribution lease took effect on or after January 1, 2024 — that is, after the effective date of the Exhibit H rent roll (December 31, 2023). The Mercer Distribution lease, which is a ten-year term commencing September 1, 2019, would typically contain annual or periodic rent escalations. A 2.0% annual escalation applied to the December 31, 2023 base rent of $7,532,000 would produce a figure of approximately $7,682,640, which is very closely aligned with the $7,682,800 figure reported in the estoppel certificate (the minor difference likely attributable to rounding at the per-RSF level). Accordingly, it appears that the Exhibit H rent roll accurately reflects the rate in effect as of its date (December 31, 2023), while the estoppel certificate correctly reflects the current post-escalation rate.
Recommendation: We recommend that Buyer request Seller to provide supplemental disclosure confirming whether a contractual rent escalation under the Mercer Distribution lease took effect on or after January 1, 2024, and if so, the effective date, escalation rate, and resulting base rent. If confirmed, the Exhibit H rent roll should be supplemented or updated to reflect the current rental rate, and the estoppel certificate should be accepted as consistent with the terms of the lease. Zynvaro Distribution Holdings LLC is a Major Tenant under the PSA (occupying 538,000 RSF, well in excess of the 25,000 RSF threshold), and the resolution of this discrepancy is therefore essential to satisfying both the Major Tenant estoppel requirement and the ABR coverage threshold. We note that the upward variance is favorable to Buyer, as it reflects higher in-place ABR than originally underwritten.
B. Discrepancy No. 2 — Lease Expiration Date Variance
Property: Buckhead Place Office Tower, 3380 Peachtree Road NE, Atlanta, Georgia 30326
Target Entity: GMP Buckhead LLC, a Delaware limited liability company (EIN: 84-2639901)
Tenant: Ridgecrest Advisory Partners LLC
Lease Details per Exhibit H Rent Roll:
• Premises: Approximately 18,500 RSF (Suite 1420)
• Annual Base Rent: $740,000 ($40.00/RSF)
• Monthly Base Rent: $61,666.67
• Lease Commencement: September 1, 2021
• Lease Expiration: August 31, 2026
• Security Deposit: $61,667
• Renewal Options: One (1) one-year renewal option at then-current market rate, exercisable upon not less than nine (9) months' prior written notice
Estoppel Certificate Statement: The estoppel certificate executed by Ridgecrest Advisory Partners LLC and dated April 29, 2024, states a lease expiration date of August 31, 2027.
Variance: The estoppel certificate reflects a lease expiration date that is one (1) year later than the date shown on the Exhibit H rent roll — August 31, 2027 as compared to August 31, 2026.
Potential Explanation: The most likely explanation is that Ridgecrest Advisory Partners LLC exercised its one-year renewal option, extending the lease term from August 31, 2026 to August 31, 2027. Under the rent roll as of December 31, 2023, the renewal option would have been available for exercise, and the nine-month notice period (if required) would have permitted exercise as late as approximately November 30, 2025 for a renewal commencing September 1, 2026. It is possible that the tenant exercised this option after the rent roll date but before the estoppel certificate was executed, or that a lease amendment extending the term was negotiated and executed during the same period. In either case, the extension was not captured in the December 31, 2023 rent roll.
Recommendation: We recommend that Buyer request Seller to confirm whether a renewal option was exercised or a lease amendment was executed after the rent roll date and, if so, to provide a copy of the tenant's renewal notice or the executed amendment. If the extension to August 31, 2027 is confirmed, Seller should update the disclosure schedules to reflect the extended term. The estoppel certificate would then be accepted as consistent with the amended or renewed lease. We note that this discrepancy is, on balance, favorable to Buyer, as it extends the period of occupancy and rent payment at the Buckhead Place Office Tower. Buckhead Place is a Class A office property where portfolio-wide office occupancy currently stands at 82.7%, and additional occupancy duration from an existing tenant contributes to lease rollover stability. However, it is important that the extension be formally documented and that any revised rental rate applicable during the renewal period be disclosed.
C. Discrepancy No. 3 — Security Deposit Amount Variance
Property: SouthPark Corporate Center, 6200 Fairview Road, Charlotte, North Carolina 28210
Target Entity: GMP SouthPark LLC, a Delaware limited liability company (EIN: 84-2639918)
Tenant: Birchwood Technology Group Inc.
Lease Details per Exhibit H Rent Roll:
• Premises: Approximately 218,000 RSF (Building B, Suites 100–400)
• Annual Base Rent: $5,668,000 ($26.00/RSF)
• Monthly Base Rent: $472,333.33
• Lease Commencement: March 1, 2020
• Lease Expiration: February 28, 2030
• Security Deposit: $283,400
• Renewal Options: Two (2) five-year renewal options at 95% of fair market value
Estoppel Certificate Statement: The estoppel certificate executed by Birchwood Technology Group Inc. and dated April 18, 2024, states a security deposit amount of $189,000.
Variance: The security deposit reflected in the estoppel certificate is $94,400 less than the amount shown on the Exhibit H rent roll ($189,000 vs. $283,400), representing a decrease of approximately 33.3% below the rent roll figure.
Potential Explanation: There are several possible explanations for this variance. First, the Birchwood Technology Group lease may contain a security deposit burn-down provision that permits the tenant to reduce its security deposit upon satisfaction of certain conditions, such as timely payment of all rent and other charges for a specified consecutive period (e.g., 24 or 36 months). If such a provision exists and the conditions were met after the December 31, 2023 rent roll date, the deposit would have been reduced accordingly. Second, a portion of the original security deposit may have been applied by the landlord to cure a prior tenant default, to offset unpaid rent, or to satisfy a build-out or tenant improvement obligation, resulting in a lower remaining deposit balance. Third, the deposit may have been held in the form of a letter of credit that was reduced or partially drawn.
Impact on Closing: If the security deposit held by the landlord is indeed $189,000 rather than $283,400, the aggregate tenant security deposits to be transferred to Buyer at closing will be reduced by $94,400. The current aggregate security deposit figure reflected in the PSA schedules is $4,283,000. A $94,400 reduction would bring the aggregate to $4,188,600. This difference, while not enormous in the context of a $1.1 billion transaction, could affect the closing proration statement and must be reflected in the final settlement statement prepared by Commonwealth National Title Insurance Company.
Recommendation: We recommend that Buyer request Seller to provide complete documentation regarding the current security deposit balance for the Birchwood Technology Group lease, including any security deposit burn-down provisions in the lease or amendments, any notices or certifications relating to deposit reductions, and any records of deposit application. The Seller should reconcile the security deposit balance with bank records maintained at Magnolia Commerce Bank, N.A., where the Target Entity operating accounts are held. If the $189,000 figure is confirmed as the current deposit amount, the security deposit schedule and closing proration statement must be updated accordingly. Given that Birchwood Technology Group is a Major Tenant (occupying 218,000 RSF), resolution of this discrepancy is required for the Major Tenant estoppel delivery condition to be satisfied.
D. Discrepancy No. 4 — Rent Amount Variance
Property: Southport Logistics Park, 3200 Southport Connector Road, Jacksonville, Florida 32218
Target Entity: GMP Southport LLC, a Delaware limited liability company (EIN: 84-2527849)
Tenant: Atlas Freight Logistics Corp.
Lease Details per Exhibit H Rent Roll:
• Premises: Approximately 410,000 RSF (entire building)
• Annual Base Rent: $5,330,000 ($13.00/RSF)
• Monthly Base Rent: $444,166.67
• Lease Commencement: January 1, 2021
• Lease Expiration: December 31, 2030
• Security Deposit: $266,500
• Renewal Options: One (1) five-year renewal option at fair market value
Estoppel Certificate Statement: The estoppel certificate executed by Atlas Freight Logistics Corp. and dated May 1, 2024, states current monthly base rent of $432,500.00, which annualizes to $5,190,000, or approximately $12.66/RSF.
Variance: The annualized rent reflected in the estoppel certificate is $140,000 less than the Exhibit H rent roll figure ($5,190,000 vs. $5,330,000), representing a decrease of approximately 2.6% below the rent roll figure.
Potential Explanation: There are several potential explanations for this downward variance, and each carries different implications for Buyer. First, a temporary rent abatement or credit may currently be in effect under the Atlas Freight lease that was not disclosed in the Exhibit H rent roll. Such an abatement could have been granted in connection with a lease amendment, a landlord concession related to property condition issues, or a negotiated resolution of a tenant dispute. Second, the Exhibit H rent roll may have reflected projected or scheduled rent escalations that had not yet taken effect as of the date of the estoppel certificate, resulting in the rent roll showing a rate higher than the rate actually being paid. Third, a separate rent credit agreement or side letter may exist that reduces the effective rent below the contractual base rent set forth in the lease.
Impact on Closing: This discrepancy is of particular concern because, if the lower rent figure represents the true current contractual obligation, it has the effect of reducing total portfolio ABR. A $140,000 reduction would change total in-place ABR from $74,800,000 to $74,660,000. This reduction, while modest in percentage terms, would affect the implied in-place capitalization rate for the portfolio, reducing it from approximately 6.80% (based on $74,800,000 ABR / $1,100,000,000 purchase price) to approximately 6.79%. More importantly, Atlas Freight Logistics Corp. is the fifth-largest tenant in the portfolio by ABR and a Major Tenant occupying the entire Southport Logistics Park facility. Any undisclosed rent abatement or credit with respect to this tenancy could implicate Seller's representations under Section 5.1(q) (accuracy of the rent roll) and Section 5.1(r) (absence of undisclosed side agreements or concessions). The matter warrants careful scrutiny.
Recommendation: We recommend that Buyer request Seller to confirm the current contractual base rent under the Atlas Freight lease and to provide any rent abatement letter, credit agreement, side letter, or other documentation that may account for the lower rent figure. If a temporary abatement is in effect, Seller should disclose the full abatement period, the terms and conditions of the abatement, the date on which unabated rent is scheduled to resume, and the reason for the abatement. If the rent roll figure was based on a projected escalation that has not yet taken effect, Seller should clarify the scheduled escalation date and confirm the current applicable rate. This discrepancy must be resolved before the Atlas Freight estoppel certificate can be counted toward the ABR coverage threshold or accepted as satisfying the Major Tenant delivery requirement.
E. Discrepancy No. 5 — Lease Expiration Date Variance
Property: Cool Springs Office Park, 5000 Virginia Way, Brentwood, Tennessee 37027
Target Entity: GMP Cool Springs LLC, a Delaware limited liability company (EIN: 84-2639925)
Tenant: Pinnwood Financial Services Inc.
Lease Details per Exhibit H Rent Roll:
• Premises: Approximately 22,000 RSF (Suite 300)
• Annual Base Rent: $836,000 ($38.00/RSF)
• Monthly Base Rent: $69,666.67
• Lease Commencement: April 1, 2020
• Lease Expiration: March 31, 2025
• Security Deposit: $69,667
• Renewal Options: None listed
Estoppel Certificate Statement: The estoppel certificate executed by Pinnwood Financial Services Inc. and dated April 25, 2024, states a lease expiration date of December 31, 2024.
Variance: The estoppel certificate reflects a lease expiration date that is three (3) months earlier than the date shown on the Exhibit H rent roll — December 31, 2024 as compared to March 31, 2025.
Potential Explanation: There are two principal possibilities. First, a lease amendment may have been executed after the December 31, 2023 rent roll date (or prior to that date but not reflected in the rent roll) that shortened the term from March 31, 2025 to December 31, 2024. Lease term reductions sometimes occur in connection with a tenant's downsizing plans, early termination negotiations, or other business restructuring. Second, the Exhibit H rent roll may contain a data entry error with respect to the expiration date, and the lease may have always provided for a December 31, 2024 expiration.
Impact on Closing: This discrepancy is particularly concerning because, if the lease does in fact expire on December 31, 2024, the Pinnwood Financial Services space will become vacant approximately seven (7) months after the scheduled closing date of May 31, 2024. This creates a near-term vacancy risk at the Cool Springs Office Park, an office property that is already subject to softening occupancy trends in the broader Nashville/Brentwood office submarket. Portfolio-wide office occupancy currently stands at 82.7%, and any additional near-term vacancy would put further downward pressure on this metric. Additionally, Cool Springs Office Park is one of the properties in the portfolio for which the Property Condition Assessment ("PCA") identified immediate repair needs totaling approximately $620,000 (principally related to HVAC replacement and parking lot resurfacing). The combination of near-term vacancy risk and capital expenditure needs at this property may have implications for Buyer's asset management and budgeting plans.
Recommendation: We recommend that Buyer request Seller to provide the current lease and all amendments for the Pinnwood Financial Services tenancy to reconcile the expiration date. If December 31, 2024 is the correct expiration date, Seller should update the disclosure schedules accordingly and provide an explanation for the inconsistency with the Exhibit H rent roll. Buyer's asset management team (Marcus Devereaux and Leah Torrance) should be alerted to this potential near-term vacancy so that leasing and capital planning for the Cool Springs property can be adjusted as necessary. We further note that Pinnwood Financial Services, at 22,000 RSF, falls below the 25,000 RSF Major Tenant threshold and therefore is not subject to the separate Major Tenant estoppel delivery requirement; however, the accuracy of the estoppel certificate remains relevant to the overall ABR coverage calculation and to Seller's rent roll representation.
F. Discrepancy No. 6 — Security Deposit Amount Variance
Property: Lakeland Crossings Industrial, 7100 Drane Field Road, Lakeland, Florida 33811
Target Entity: GMP Lakeland LLC, a Delaware limited liability company (EIN: 84-2527834)
Tenant: Suncoast Warehousing & Distribution LLC
Lease Details per Exhibit H Rent Roll:
• Premises: Approximately 48,000 RSF
• Annual Base Rent: $528,000 ($11.00/RSF)
• Monthly Base Rent: $44,000.00
• Lease Commencement: July 1, 2022
• Lease Expiration: June 30, 2027
• Security Deposit: $72,000
• Renewal Options: One (1) three-year renewal option at 103% of then-current base rent
Estoppel Certificate Statement: The estoppel certificate executed by Suncoast Warehousing & Distribution LLC and dated April 30, 2024, states a security deposit amount of $96,000.
Variance: The security deposit reflected in the estoppel certificate is $24,000 more than the amount shown on the Exhibit H rent roll ($96,000 vs. $72,000), representing an increase of approximately 33.3% above the rent roll figure.
Potential Explanation: There are several possible explanations for this upward variance. First, the lease may contain a provision requiring the tenant to increase its security deposit upon certain triggering events, such as a lease renewal, an amendment expanding the premises, or a curing of a prior default. If such a provision was triggered after the December 31, 2023 rent roll date, the additional deposit would not have been reflected in the Exhibit H rent roll. Second, the tenant may have voluntarily posted an additional deposit in connection with a lease modification or as a condition to obtaining landlord consent for an assignment or sublease. Third, the Exhibit H rent roll may simply not have been updated to reflect a deposit increase that occurred prior to December 31, 2023.
Impact on Closing: If the $96,000 figure is the correct current security deposit amount, the aggregate tenant security deposits to be transferred to Buyer at closing will be increased by $24,000, which is favorable to Buyer. The current aggregate security deposit figure reflected in the PSA schedules is $4,283,000; a $24,000 increase would bring the aggregate to $4,307,000 (before accounting for any adjustment from Discrepancy No. 3 above). Notwithstanding that this variance operates in Buyer's favor, the discrepancy must be reconciled to ensure accuracy in the closing proration statement and in the security deposit schedule that will govern Buyer's post-closing obligations to the tenant with respect to the deposit.
Recommendation: We recommend that Buyer request Seller to confirm the correct security deposit amount currently held on behalf of Suncoast Warehousing & Distribution LLC and to provide documentation of any deposit increase, including the relevant lease provision, amendment, or correspondence. The deposit balance should be reconciled with bank records maintained at Magnolia Commerce Bank, N.A. If the $96,000 figure is confirmed, the security deposit schedule and closing proration statement should be updated accordingly.
IV. Summary Table of Discrepancies
The following table summarizes the six (6) estoppel certificate discrepancies identified in Section III above:
V. Impact on Closing Conditions and ABR Threshold
A. Combined ABR of the Six Discrepant Tenancies
The six tenants identified in Section III represent the following aggregate annual base rent under the Exhibit H rent roll:
The combined ABR of the six discrepant tenancies is approximately $20,634,000, representing approximately 27.6% of total portfolio ABR of $74,800,000.
B. Effect on 80% ABR Threshold
If any or all of the six discrepant estoppel certificates are deemed unacceptable to Buyer or Buyer's lenders and are therefore excluded from the ABR coverage calculation, the impact on the 80% ABR threshold would be significant. As of May 8, 2024, the 62 estoppel certificates received represent approximately 78% of ABR ($58,344,000). If the six discrepant estoppels — representing $20,634,000 in ABR — were excluded from the acceptable count, the remaining acceptable estoppel coverage would drop to approximately $37,710,000, or approximately 50.4% of portfolio ABR, well below the required 80% threshold of $59,840,000.
Even the exclusion of one or two of the larger discrepant estoppels could jeopardize the threshold. For example, the exclusion of the Mercer Distribution estoppel alone ($7,532,000 ABR) would reduce acceptable coverage from $58,344,000 to $50,812,000 (approximately 67.9%), and the further exclusion of Birchwood Technology Group ($5,668,000) would reduce it to $45,144,000 (approximately 60.4%).
Conversely, if all six discrepancies are resolved through Seller's supplemental disclosure and the estoppel certificates are accepted as consistent with the leases (as updated or corrected), all six certificates can be counted toward the ABR coverage threshold, maintaining or potentially increasing the coverage percentage. In such a scenario, the 62 received certificates would continue to represent approximately 78% of ABR, and the receipt of additional certificates from the 25 outstanding tenants would be needed to satisfy the remaining 2% gap to reach 80%.
C. Major Tenant Implications
Three of the six tenants are Major Tenants under the PSA (each occupying 25,000 or more RSF):
• Zynvaro Distribution Holdings LLC — 538,000 RSF (Discrepancy No. 1)
• Birchwood Technology Group Inc. — 218,000 RSF (Discrepancy No. 3)
• Atlas Freight Logistics Corp. — 410,000 RSF (Discrepancy No. 4)
Under Section 7.2(b) of the PSA, compliant estoppel certificates must be received from every Major Tenant. If any of these three estoppel certificates is not accepted due to an unresolved discrepancy, the Major Tenant estoppel condition precedent would not be satisfied, regardless of whether the 80% ABR threshold is otherwise met. This underscores the importance of resolving these discrepancies promptly.
D. Lender Acceptability
Each of the three assumed mortgage lenders — Pinnacle Federal Bank, N.A., Veltrano Capital Lending Corp., and Sycamore Life Insurance Company — has the contractual right under its respective loan documents and the assumption approvals to review and approve tenant estoppel certificates as part of the loan assumption process. The estoppel certificates must be reasonably acceptable not only to Buyer but also to each applicable lender and its counsel:
• Pinnacle Federal Bank, N.A. — represented by Whitfield & Archer LLP (lead counsel: Patricia Ashworth)
• Veltrano Capital Lending Corp. — represented by Cranford McCabe LLP (lead counsel: Jonathan Hale)
• Sycamore Life Insurance Company — represented by Partridge Wynn & Slater LLP (lead counsel: Daniel Wexford)
Material discrepancies in estoppel certificates — particularly those relating to rent amounts and lease expiration dates — may give any of these lenders grounds to object to the estoppel certificates and potentially to delay or condition the loan assumption. We have not yet circulated the six discrepant estoppel certificates to lenders' counsel pending resolution with the Seller, and we recommend that these certificates be held until the discrepancies are reconciled. Presenting unresolved discrepancies to lenders' counsel at this juncture would likely prompt additional inquiries, delay the assumption process, and potentially provide the lenders with contractual grounds to withhold consent.
VI. Communication with Seller's Counsel
Simultaneously with the delivery of this memorandum, a letter has been transmitted via email and overnight courier to Blackridge Hayes LLP, Seller's outside counsel, at the following addresses:
Nathaniel Pryce, Esq. Thomas Keating, Esq. Blackridge Hayes LLP One Liberty Plaza, 38th Floor New York, New York 10006
The letter identifies all six (6) discrepancies in detail, organized by property, tenant, and category, and requests the following from the Seller:
1. Written Supplemental Disclosure for each discrepancy, providing a complete explanation of the variance between the estoppel certificate and the Exhibit H rent roll, signed by or on behalf of an authorized representative of the Seller.
2. Copies of Supporting Documentation, including any lease amendments, renewal option exercise notices, rent abatement letters or credit agreements, security deposit adjustment notices, burn-down certifications, or other instruments that account for the discrepancy.
3. Updated Rent Roll reflecting current rental rates, lease terms, and tenant information as of a date no earlier than May 1, 2024, to replace or supplement the December 31, 2023 Exhibit H rent roll for purposes of the closing.
4. Confirmation of Correct Security Deposit Amounts with respect to the Birchwood Technology Group Inc. and Suncoast Warehousing & Distribution LLC tenancies, supported by bank statements or account ledgers from Magnolia Commerce Bank, N.A., where the Target Entity operating accounts are maintained, confirming the deposit balances currently held.
The letter requests that all responsive materials be delivered to Calderwood & Harkness LLP no later than May 13, 2024 — two (2) business days before the May 15, 2024 estoppel delivery deadline under the PSA. This timeline is necessary to allow Buyer and its counsel sufficient time to review the supplemental disclosure, assess its adequacy, and determine whether the estoppel certificates can be accepted before the deadline.
The letter further requests that the Seller's Knowledge Individuals — specifically, Victor Lansdell (Chief Investment Officer, GMP Fund III), Elise Rathborne (General Counsel, Greystone Meridian Partners), and Sean Kilpatrick (Portfolio Manager, Argyle Property Services LLC) — be consulted in the preparation of the supplemental disclosures to ensure that all responsive information is accurate and complete. Under Section 5.1 of the PSA, the Seller's representations and warranties are qualified to the "knowledge" of these individuals, and their involvement in the reconciliation process is therefore critical to the integrity of the supplemental disclosure.
A copy of the letter has been provided to Douglas Fairchild, Angela Fontaine, and Camille Oduya under separate cover.
VII. Recommendations and Next Steps
Based on the analysis set forth above, we recommend the following course of action:
1. Await Seller Supplemental Disclosure. The deal team should await Seller's response to the letter transmitted to Blackridge Hayes LLP requesting supplemental disclosure for each of the six (6) identified discrepancies. The requested response deadline is May 13, 2024.
2. Review Supplemental Documentation. Upon receipt of any supplemental disclosure, lease amendments, renewal notices, rent abatement letters, security deposit documentation, or other materials from the Seller, the Calderwood & Harkness deal team should promptly review each item for consistency with the corresponding estoppel certificate. The Estoppel Tracking Spreadsheet should be updated to reflect the status of each discrepancy and any revised figures.
3. Approve Reconciled Estoppel Certificates. If the discrepancies are satisfactorily explained through the Seller's supplemental disclosure and supporting documentation, the six (6) estoppel certificates should be approved and counted toward the 80% ABR threshold. The ABR coverage percentage should be recalculated to confirm that the threshold is met (or to quantify the remaining gap, if any).
4. Address Unresolved Discrepancies. If any discrepancy is not satisfactorily resolved by the May 15, 2024 estoppel delivery deadline, the following actions should be considered:
(a) Determine whether the unresolved estoppel certificate(s) must be excluded from the ABR coverage calculation and, if so, whether the remaining acceptable estoppel certificates are sufficient to satisfy the 80% ABR threshold;