ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
Calderwood & Harkness LLP 1700 K Street NW, Suite 900 Washington, DC 20006
Matter No. 1036-00004
FROM: Rafael Dominguez, Working Associate, Real Estate Group, Calderwood & Harkness LLP (Washington, DC)
Reviewed and approved by: Douglas Fairchild, Responsible Partner, Real Estate Group, Calderwood & Harkness LLP (450 Park Avenue, 28th Floor, New York, NY 10022)
TO: Leah Torrance, Senior Vice President, Asset Management, Fairwater Real Estate Investment Trust / Fairwater Property Management LLC, 7200 Chesapeake Parkway, Suite 1150, Columbia, Maryland 21044
CC: Marcus Devereaux, Executive Vice President, Acquisitions, Fairwater REIT David Elgin Park, General Counsel, Fairwater REIT Camille Oduya, In-House Real Estate Counsel, Fairwater REIT Grace Nakamura, Lead Associate, Calderwood & Harkness LLP
DATE: June 7, 2024
RE: Post-Closing Property Management Transition — Fairwater REIT Acquisition of 14-Property Sun Belt Logistics and Office Portfolio from Greystone Meridian Partners Fund III, L.P.
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I. Purpose and Executive Summary
The purpose of this memorandum is to outline in detail the operational steps, timelines, responsibilities, and legal requirements for the transition of property management services from Argyle Property Services LLC ("Argyle" or the "Incumbent Manager"), the Seller-affiliated incumbent property manager, to Fairwater Property Management LLC ("Fairwater PM" or the "Buyer Manager"), the property management affiliate of Fairwater Real Estate Investment Trust ("Fairwater REIT" or the "Buyer"), with respect to the 14-property Sun Belt logistics and office portfolio (the "Portfolio") acquired by Fairwater REIT from Greystone Meridian Partners Fund III, L.P. ("Greystone" or the "Seller").
Closing on the acquisition occurred on June 6, 2024 (the "Closing Date"). Pursuant to the Purchase and Sale Agreement dated as of March 29, 2024, as amended by that certain First Amendment to Purchase and Sale Agreement dated May 3, 2024, and that certain Second Amendment to Purchase and Sale Agreement dated May 24, 2024 (collectively, the "PSA"), Fairwater REIT acquired 100% of the membership interests in each of the fourteen (14) single-purpose Delaware limited liability companies constituting the Target Entities (as defined below and in Section II of this memorandum). The aggregate purchase price, as adjusted for the PCA credit described in Section XI, was $1,098,930,000.
The management transition is governed primarily by the Transition Services Agreement (the "TSA"), executed on the Closing Date between Argyle Property Services LLC, as Service Provider, and Fairwater Property Management LLC, as Recipient. Key terms of the TSA include:
•  TSA Period: 90 calendar days post-closing, commencing June 6, 2024 and expiring September 4, 2024.
•  TSA Fee: $375,000 per month, payable on the first day of each month during the term, for a total of $1,125,000 over the three-month transition period.
•  Argyle Principal Contact: Sean Kilpatrick, Portfolio Manager, Argyle Property Services LLC, 3300 Peachtree Road NE, Suite 2200, Atlanta, GA 30326.
•  Fairwater PM Principal Contact: Leah Torrance, Senior Vice President, Operations, Fairwater Property Management LLC, 7200 Chesapeake Parkway, Suite 1150, Columbia, Maryland 21044.
This memorandum addresses the following key workstreams that must be completed or substantially advanced during the 90-day transition period:
1.  Vendor contract novation, assumption, and termination;
2.  Operating account transfers and banking relationship management;
3.  Tenant communication and relationship management;
4.  Personnel and staffing transition;
5.  Insurance transition and compliance;
6.  Technology and data systems migration;
7.  Books and records transfer;
8.  Regulatory compliance, licensing, and state filings;
9.  Post-closing proration true-up coordination; and
10.  Master timeline and milestone tracking.
Portfolio Overview. The Portfolio comprises 14 properties located across five states in the Sun Belt region of the United States. The geographic distribution and composition of the Portfolio is as follows:
•  States: Georgia (4 properties), Texas (3 properties), Florida (3 properties), Tennessee (3 properties), and North Carolina (1 property).
•  Property Types: 10 logistics/industrial properties and 4 office properties.
•  Total Rentable square Footage: 5,224,000 RSF.
•  Total Leases: 87 leases across the Portfolio.
•  Annual In-Place Base Rent: $74,800,000.
•  Weighted-Average Occupancy: 93.2% (logistics: 96.1%; office: 82.7%).
The balance of this memorandum is organized to provide Fairwater PM with a comprehensive roadmap for the transition, including property-by-property identification, detailed discussion of each workstream, responsible parties, deadlines, a complete milestone checklist, and a key contacts directory. We have endeavored to present the material in a practical, action-oriented format so that the transition team can use this memorandum as an operational guide throughout the 90-day TSA period and beyond.
II. Portfolio Summary and Target Entity Identification
A. Property-by-Property List
Set forth below is a complete listing of all 14 properties in the Portfolio, together with the address, city, state, property type, rentable square footage, and the name of the Target Entity (the single-purpose Delaware LLC) that owns each property. As noted above, Fairwater REIT acquired 100% of the membership interests in each Target Entity, and the properties are therefore held indirectly through these entity-level interests.
Portfolio Composition Summary:
•  Logistics Properties (10): 4,373,000 RSF, representing approximately 83.7% of total portfolio RSF.
•  Office Properties (4): 851,000 RSF, representing approximately 16.3% of total portfolio RSF.
•  Geographic Distribution: Georgia — 4 properties (1,429,000 RSF); Texas — 3 properties (1,647,000 RSF); Florida — 3 properties (934,000 RSF); Tennessee — 3 properties (996,000 RSF); North Carolina — 1 property (218,000 RSF).
Each Target Entity is a Delaware limited liability company. All 14 Target Entities were originally formed by affiliates of Greystone Meridian Partners Fund III, L.P. as single-purpose vehicles for the purpose of owning and operating their respective properties. As a result of the Closing, Fairwater REIT is now the sole member of each Target Entity. Calderwood & Harkness LLP ("C&H") has prepared Amended and Restated Operating Agreements for all 14 Target Entities reflecting Fairwater REIT as the sole member and Fairwater PM as the authorized manager. Execution copies of these operating agreements were delivered at Closing and are included in the closing binder.
B. Key Tenant Summary
The Portfolio is leased to 87 tenants pursuant to 87 individual lease agreements. Set forth below is a summary of key tenancy metrics and the top five tenants by annual base rent ("ABR").
•  Total Leases: 87
•  Weighted-Average Occupancy (Portfolio): 93.2%
•  Logistics Properties: 96.1% weighted-average occupancy
•  Office Properties: 82.7% weighted-average occupancy
•  Annual In-Place Base Rent: $74,800,000
•  Aggregate Tenant Security Deposits: $4,283,000, held in Target Entity bank accounts at Magnolia Commerce Bank, N.A. (as further described in Section V)
Top 5 Tenants by Annual Base Rent:
These five tenants collectively represent approximately $33,446,000 in ABR, or approximately 44.7% of total Portfolio ABR. Given the concentration, Fairwater PM should prioritize relationship management with these tenants during the transition period, as discussed further in Section VI below.
The Portfolio's tenant base is diversified across logistics, distribution, e-commerce fulfillment, pharmaceutical supply chain, technology, financial services, and professional services sectors. The logistics properties, which account for the majority of the Portfolio's RSF and ABR, benefit from strong market fundamentals in the Sun Belt region, with limited near-term lease rollover risk. A detailed rent roll and lease expiration schedule was provided in the closing data room and is referenced in the closing binder for Fairwater PM's use.
III. Transition Services Agreement — Key Terms and Obligations
A. TSA Overview
The transition of property management operations from Argyle to Fairwater PM is governed by the Transition Services Agreement (the "TSA") executed on the Closing Date, June 6, 2024. The TSA was negotiated as part of the overall transaction and reflects the parties' agreement to ensure a smooth and orderly handoff of day-to-day property operations. The key commercial terms of the TSA are summarized as follows:
•  Parties: Argyle Property Services LLC, as Service Provider, and Fairwater Property Management LLC, as Recipient.
•  Effective Date: June 6, 2024 (the Closing Date).
•  Term: 90 calendar days, commencing on the Effective Date and expiring on September 4, 2024 (the "TSA Expiration Date").
•  Monthly Fee: $375,000 per month, for an aggregate total of $1,125,000 over the full three-month term.
•  Payment Terms: The monthly fee is due and payable on the first day of each calendar month during the TSA term. The first monthly payment of $375,000 was made at Closing. The second payment is due on or before July 1, 2024, and the third payment is due on or before August 1, 2024.
Fairwater PM should calendar these payment dates and ensure that payment instructions (wire or ACH) to Argyle are confirmed with Sean Kilpatrick, Argyle's designated Portfolio Manager and primary point of contact under the TSA.
B. Scope of Transition Services
Under the TSA, Argyle has agreed to provide the following categories of transition services during the 90-day term:
(a) Continued Day-to-Day Property Management. Argyle will continue to perform routine property management functions for all 14 properties, including maintenance and repair coordination, vendor oversight, tenant request management, and emergency response, pending full assumption by Fairwater PM.
(b) Cooperation and Knowledge Transfer. Argyle will cooperate with Fairwater PM in all respects necessary to facilitate the orderly transfer of property management operations, including making Argyle's on-site and corporate personnel available for training sessions, property tours, walk-throughs, and other knowledge transfer activities as reasonably requested by Fairwater PM.
(c) Designated Points of Contact. Sean Kilpatrick, Argyle's Portfolio Manager, is designated as Argyle's primary point of contact for all TSA-related matters. Leah Torrance, SVP, Asset Management / SVP Operations, Fairwater PM, is designated as Fairwater PM's primary point of contact. Each party has agreed to provide a secondary designee, to be identified in writing within five business days of the Effective Date.
(d) Existing Service Contracts. During the TSA period, Argyle will continue to operate under and administer the existing property-level service contracts, unless otherwise directed by Fairwater PM in writing. This includes processing and approving invoices, managing vendor relationships, and addressing any service deficiencies or disputes that may arise in the ordinary course.
(e) Access to Software, Data, and Records. Argyle will provide Fairwater PM with full access to Argyle's property management software systems, data, records, and files for all 14 properties. This includes login credentials for property management platforms, building management systems (BMS), tenant portals, and any other technology systems used in connection with the management of the Portfolio.
(f) Financial Reporting. Argyle will continue to prepare and deliver monthly financial statements and operating reports for each Target Entity during the TSA period, in the same format and level of detail as previously provided to the Seller. These reports will be delivered to Fairwater PM no later than the 15th day of the following month.
Fairwater PM should take full advantage of the cooperation and knowledge transfer obligations set forth in the TSA. We recommend that Fairwater PM begin scheduling property visits and training sessions promptly and maintain a log of all information requests submitted to Argyle, together with Argyle's responses, to document compliance with the TSA and to identify any potential transition issues as early as possible.
C. Termination and Early Transition
The TSA includes provisions permitting Fairwater PM to accelerate the transition of individual properties or the entire Portfolio ahead of the TSA Expiration Date:
(a) Property-by-Property Early Assumption. Fairwater PM may assume full management of any individual property at any time during the TSA term by providing Argyle with not less than 15 days' prior written notice (an "Early Assumption Notice"). Upon the effective date of such Early Assumption Notice, Argyle's management obligations with respect to the subject property shall cease, and Fairwater PM shall assume full responsibility for day-to-day property management of that property.
(b) No Pro-Rata Fee Reduction. Importantly, the TSA does not provide for a pro-rata reduction of the monthly fee in the event of a partial-month early assumption. The full monthly fee of $375,000 remains payable for any month in which any property is being managed by Argyle, regardless of the number of properties that have been assumed early by Fairwater PM during that month.
(c) Full Portfolio Early Assumption. If Fairwater PM assumes management of all 14 properties prior to the TSA Expiration Date, the TSA will terminate, and no further monthly fees will accrue after the final month in which the early assumption of the last remaining property occurs. By way of example, if Fairwater PM assumes all 14 properties on August 10, 2024, the August monthly fee of $375,000 would still be payable, but no September fee would be owed.
Fairwater PM should evaluate its staffing readiness and operational preparedness on a rolling basis throughout the transition period to determine whether early assumption of some or all properties is feasible and cost-effective. Early assumption may be advantageous for properties where Fairwater PM has existing regional infrastructure and where the transition workstreams described in this memorandum have been substantially completed.
D. Indemnification and Insurance During Transition
The TSA contains mutual indemnification provisions, with the following key protections for Fairwater PM:
(a) Argyle Indemnity. Argyle has agreed to indemnify, defend, and hold harmless Fairwater PM and its affiliates (including Fairwater REIT and each Target Entity) from and against all losses, liabilities, damages, costs, and expenses (including reasonable attorneys' fees) arising out of or resulting from Argyle's gross negligence or willful misconduct in the performance of the transition services during the TSA period.
(b) Insurance Maintenance. Argyle is required to maintain its existing insurance policies — including its commercial general liability, professional liability (errors and omissions), workers' compensation, and automobile liability policies — through the TSA period, or until such time as Fairwater PM's replacement coverage is in effect for the relevant property or service activity.
Fairwater PM should promptly request and review certificates of insurance from Argyle evidencing the required coverages and confirming that all policies will remain in force through the TSA Expiration Date. Any lapse in Argyle's coverage should be reported immediately to C&H and to Fairwater REIT's General Counsel.
IV. Vendor Contract Novation and Termination
A. Overview of Existing Service Contracts
As part of its due diligence review, C&H prepared the Service Contract Review Memorandum (dated May 15, 2024), which catalogued and analyzed all 63 property-level service contracts across the 14 properties in the Portfolio. These contracts cover a broad range of building services, including but not limited to landscaping and grounds maintenance, janitorial and custodial services, security services, elevator maintenance and inspection, HVAC preventive maintenance and repair, plumbing, electrical, fire alarm and life safety system monitoring and inspection, pest control, and waste removal.
All 63 service contracts were effectively assigned from the respective Target Entities to Fairwater REIT through the entity-level membership interest transfer at Closing. In addition, the Assignment and Assumption of Leases, Contracts, and Intangibles executed on June 6, 2024 further confirmed the assumption of these contracts by the Target Entities under new ownership. As a result, Fairwater PM — as the authorized property manager for each Target Entity — now has the authority to administer, amend, terminate, or novate these contracts in accordance with their respective terms.
B. Contracts to Be Terminated
Of the 63 property-level service contracts, C&H identified 12 contracts that are recommended for termination post-closing. The basis for each recommended termination falls into one or more of the following categories:
(i) Duplicative Scope. The services provided under the contract are substantially similar to services already provided under Fairwater PM's existing national vendor contracts, and maintaining the duplicate contract would result in unnecessary cost and administrative burden.
(ii) Unfavorable Pricing. The contract pricing is materially above market rates for comparable services in the relevant market, as benchmarked against Fairwater PM's national vendor pricing and publicly available market data.
(iii) Imminent Expiration. The contract expires within 90 days of Closing and, in the judgment of Fairwater PM and C&H, does not merit renewal.
Termination Timeline and Process:
•  Termination notices for all 12 identified contracts must be issued by Fairwater PM within 30 days of Closing, i.e., by no later than July 6, 2024.
•  Termination provisions vary by contract. The majority of these contracts require either 30 or 60 days' written notice of termination. A small number of contracts contain early termination fees, which were identified in the Service Contract Review Memorandum and factored into the termination analysis.
•  C&H will prepare form termination letters for Fairwater PM's use, tailored to the specific notice requirements of each contract. Where state-specific notice requirements apply (for example, with respect to licensed security guard services in Florida or fire alarm monitoring contracts in Texas), C&H will coordinate with local counsel in the applicable jurisdiction to ensure compliance.
•  Fairwater PM should review the termination letters, execute them on behalf of the applicable Target Entity, and deliver them to the vendor by the methods required under each contract (typically, certified mail, return receipt requested, or overnight courier with signature confirmation).
C. Contracts to Be Novated or Assumed
Approximately 51 of the 63 property-level service contracts will continue in effect following Closing. For these contracts, Fairwater PM should issue vendor notification and novation letters to each vendor to inform them of the change in ownership and management. The purpose of these letters is both practical — to ensure continuity of service and proper invoicing — and legal — to confirm that the Buyer has assumed the contract obligations and to establish updated points of contact.
Each vendor notification letter should include the following information:
(i) Identification of the new owner of the property: Fairwater Real Estate Investment Trust, acting through its wholly owned subsidiary, the applicable Target Entity LLC.
(ii) Identification of the new property manager: Fairwater Property Management LLC.
(iii) Updated remittance and payment instructions, to be provided once the operating account signatories have been transitioned (as described in Section V).
(iv) New management contact information: Leah Torrance, SVP Operations, Fairwater Property Management LLC, 7200 Chesapeake Parkway, Suite 1150, Columbia, Maryland 21044.
(v) Confirmation that all other terms and conditions of the vendor contract remain unchanged, unless a separate amendment or modification is agreed by the parties.
Timeline: Vendor novation letters should be sent within 15 business days of Closing, i.e., by no later than June 27, 2024.
Assignment Consent Requirement. A limited number of vendor contracts contain anti-assignment provisions or require the vendor's consent for any assignment of the contract. Because the transaction was structured as an entity-level transfer (rather than an asset-level transfer), the identity of the contracting party — the Target Entity LLC — did not change, and accordingly, most anti-assignment provisions should not be triggered. However, certain contracts define "assignment" broadly to include a change in the ownership or control of the contracting party. For those contracts, Fairwater PM should obtain the vendor's written consent to the change in ownership. C&H is available to assist with identifying which contracts require vendor consent and with the preparation of any formal consent documents.
D. New Vendor Contracts
Where Fairwater PM determines that existing vendor contracts should be replaced with Fairwater PM's national vendor partners — whether because the existing contracts are being terminated (as described in Section IV.B above) or because Fairwater PM's national partners offer superior service quality, coverage, or pricing — Fairwater PM should engage its national vendors to provide services at the applicable properties.
All new vendor contracts should be executed in the name of the applicable Target Entity LLC (as the property-owning entity), with Fairwater PM acting as authorized agent on behalf of the Target Entity. This structure is consistent with the standard practice for Fairwater PM's existing portfolio and ensures that the contractual obligations run with the property-owning entity rather than the management company.
Fairwater PM should coordinate with Argyle during the transition period to ensure that there are no gaps in service coverage between the termination of existing vendor contracts and the commencement of new vendor engagements. For critical services — including fire alarm monitoring, elevator maintenance, and HVAC — service continuity is essential and should be confirmed in advance of any contract termination.
V. Operating Account Transfers at Magnolia Commerce Bank, N.A.
A. Current Account Structure
All 14 Target Entity operating accounts and security deposit accounts are currently maintained at Magnolia Commerce Bank, N.A. ("Magnolia Commerce"), located at 225 Peachtree Street NE, Suite 100, Atlanta, GA 30303. The bank contact for the Portfolio is Linda Prescott, Vice President, Commercial Banking. The bank's Employer Identification Number (EIN) is 58-1834672.
Each Target Entity maintains its own dedicated bank accounts at Magnolia Commerce, with accounts titled in the name of the respective Target Entity (e.g., GMP Fairfield I LLC, GMP Westlake LLC, etc.). The account structure includes, at minimum, (i) a primary operating account for the receipt of rental income and the payment of property-level operating expenses and debt service, and (ii) a segregated security deposit account for the maintenance of tenant security deposits.
The aggregate balance of tenant security deposits held across all 14 Target Entity accounts is $4,283,000. These funds are held in trust for the benefit of the tenants and are subject to the security deposit provisions of each applicable lease, as well as state statutory requirements governing security deposit handling and segregation, as discussed further below.
Because the transaction was structured as an entity-level membership interest transfer, the Target Entities' existing bank accounts at Magnolia Commerce remain intact. There is no need to open new bank accounts or to change account numbers, which significantly simplifies the banking transition and minimizes disruption to tenant payment flows.
B. Account Transition Steps
Notwithstanding the preservation of the existing account structure, several critical banking actions must be completed promptly following Closing to ensure that Fairwater PM has operational control over the Target Entity accounts and that all authorized signatories, online banking users, and payment authorizations are updated to reflect the new ownership and management. The required steps are as follows:
1. Signatory Updates
Fairwater PM must submit updated signature cards and corporate resolutions to Magnolia Commerce reflecting the following changes:
(a) Fairwater REIT is now the sole member of each Target Entity LLC.
(b) The authorized signatories on each Target Entity account are to be updated to Fairwater PM personnel, including Leah Torrance and such other designees as Fairwater PM may specify.
(c) All Argyle personnel are to be removed as authorized signatories effective upon Magnolia Commerce's processing of the updated signature cards.
C&H has prepared the Amended and Restated Operating Agreements for all 14 Target Entities reflecting Fairwater REIT as the sole member. These operating agreements, together with the appropriate corporate resolutions and incumbency certificates, should accompany the signatory change requests submitted to Magnolia Commerce.
Target Completion: Within 10 business days of Closing — i.e., by no later than June 20, 2024.
2. Online Banking Access
Fairwater PM must coordinate with Magnolia Commerce to transfer all online banking access and credentials from Argyle personnel to Fairwater PM's authorized users. This includes:
(a) Removal of all Argyle personnel from online banking platforms for each Target Entity account.
(b) Addition of Fairwater PM's authorized users, with appropriate access levels and transaction approval authorities.
(c) Enrollment in Magnolia Commerce's fraud prevention and positive pay programs, if applicable.
Fairwater PM should coordinate this step directly with Sean Kilpatrick (Argyle) and Linda Prescott (Magnolia Commerce) to ensure a seamless handoff of online banking access. C&H recommends that Fairwater PM request a temporary dual-access period of three to five business days, during which both Argyle and Fairwater PM personnel have read-only access, to facilitate reconciliation and verification.
Target Completion: Concurrent with the signatory updates described in Step 1 above.
3. ACH / Wire Authorization Updates
Fairwater PM must update the ACH origination and wire transfer authorization settings on each Target Entity account to reflect Fairwater PM personnel as the authorized initiators and approvers. This is critical for the payment of vendor invoices, debt service, insurance premiums, and other operating expenses.
Target Completion: Within 10 business days of Closing — i.e., by no later than June 20, 2024.
4. Rent Payment Redirection
Because the transaction was structured as an entity-level transfer, the existing bank account numbers for each Target Entity remain the same. Accordingly, tenant rent payments should continue to flow to the same accounts without interruption. The tenant notification letters distributed on June 7, 2024 (as described in Section VI) instructed all 87 tenants to continue remitting rent to the existing accounts unless otherwise notified.
For tenants paying via ACH (automated clearing house), Fairwater PM should confirm that the ACH routing and account information previously provided to those tenants remains accurate and unchanged. No affirmative action should be required on the part of ACH-paying tenants, but Fairwater PM should monitor incoming deposits for the first 30 days post-Closing to verify that all rent payments are being received as expected.
For tenants paying by check, Fairwater PM should confirm that the lockbox or mailing address for rent payments remains the same, or issue updated payment instructions if the lockbox arrangement was maintained under Argyle's name. This item should be discussed with Sean Kilpatrick and Linda Prescott during the first week of the transition.
5. Security Deposit Account Segregation
Fairwater PM must verify that the security deposit accounts maintained at Magnolia Commerce comply with each state's statutory requirements for the segregation and handling of tenant security deposits. The relevant statutes for the five portfolio states are as follows:
•  Georgia: O.C.G.A. § 44-7-31 et seq. — Security deposits must be held in an escrow account and may not be commingled with the landlord's operating funds.
•  Texas: Tex. Prop. Code Ann. § 92.101 et seq. — No specific segregation requirement for commercial leases, but many leases contractually require segregation; Fairwater PM should review each Texas lease for specific security deposit requirements.
•  Florida: Fla. Stat. Ann. § 83.49 — Security deposits may be held in a separate non-interest-bearing account, an interest-bearing account, or posted as a surety bond; specific notice requirements apply.
•  Tennessee: Tenn. Code Ann. § 66-28-301 et seq. — Security deposits must be held in a separate account; no commingling with landlord funds.
•  North Carolina: N.C. Gen. Stat. § 42-50 et seq. — Security deposits must be held in a trust account with a licensed and insured bank or savings institution in North Carolina, or the landlord may post a bond. Note that these statutory provisions apply to residential tenancies and the requirements for commercial tenancies are governed principally by the lease terms; Fairwater PM should review each North Carolina lease accordingly.
Fairwater PM should coordinate with local counsel in each jurisdiction to confirm that the existing security deposit account arrangements comply with applicable law and that no corrective action is required.
6. Account Consolidation Decision
Following the transition period, Fairwater PM may wish to evaluate whether to maintain the Portfolio's banking relationship at Magnolia Commerce or to consolidate the Target Entity accounts into Fairwater PM's primary banking relationship. Consolidation could yield operational efficiencies and improved cash management, but it would require opening new accounts, notifying tenants of updated payment instructions, and updating ACH arrangements with all tenants, vendors, and lenders.
C&H recommends that any account consolidation be deferred until after the expiration of the 90-day TSA period (September 4, 2024 or later) to avoid disruption to tenant payment flows and vendor payment processing during the transition. If Fairwater PM ultimately decides to pursue consolidation, C&H is available to assist with the preparation of tenant notification letters, lender consent requests (to the extent required under the loan documents), and any other legal matters associated with the account migration.
C. Payroll and AP Transition
During the TSA period, Argyle will continue to process vendor accounts payable ("AP") and, to the extent applicable, on-site employee payroll for the Portfolio properties. This ensures continuity of vendor payments and employee compensation during the transition, while Fairwater PM establishes its own AP and payroll workflows for the Portfolio.
Fairwater PM should work in parallel to set up the Portfolio properties within its existing AP and payroll processing systems, including the creation of vendor master files, establishment of payment approval hierarchies, and configuration of general ledger coding. The target date for cutover of AP processing from Argyle to Fairwater PM is August 1, 2024, approximately 60 days post-Closing. This timeline allows adequate time for system setup, testing, and reconciliation before the cutover.
For the payroll component, Fairwater PM should determine which (if any) Argyle on-site personnel will be offered employment by Fairwater PM (as discussed in Section III.B above regarding the staffing workstream) and ensure that payroll onboarding for any transferred employees is completed prior to the AP/payroll cutover date.
VI. Tenant Communication Protocol
A. Initial Tenant Notification (Completed)
Tenant notification letters were distributed to all 87 tenants in the Portfolio on June 7, 2024, the first business day following Closing. The form of the tenant notification letter was prepared by C&H and approved by Fairwater PM prior to distribution. Each letter was sent on Fairwater REIT letterhead and was co-signed by Leah Torrance on behalf of Fairwater PM.
The tenant notification letters informed each tenant of the following matters:
(i) The property (or properties) in which the tenant leases space has been acquired by Fairwater Real Estate Investment Trust, effective as of June 6, 2024.
(ii) Property management for the building will be transitioning from Argyle Property Services LLC to Fairwater Property Management LLC during the 90-day transition period.
(iii) Contact information for Fairwater PM, including the name of the SVP Operations (Leah Torrance), a dedicated property management phone number, and a general email address for tenant inquiries.
(iv) An instruction to continue remitting rent payments to the existing bank accounts at Magnolia Commerce Bank, using the same account numbers and payment instructions. Tenants were advised that they would receive further notice if any changes to payment instructions become necessary in the future.
(v) A confirmation that all lease terms, conditions, and obligations remain unchanged and in full force and effect following the change of ownership.
Distribution of the tenant notification letters was completed in all cases on June 7, 2024, by a combination of certified mail (return receipt requested), overnight courier (Severin Partners LLC, with signature confirmation), and email delivery to each tenant's designated notice address as set forth in the applicable lease. C&H confirmed the distribution in its Tenant Notification Letters — Final Distribution Confirmation memorandum, copies of which are available in the closing binder.
B. Follow-Up Tenant Communications
Beyond the initial notification, Fairwater PM should undertake the following follow-up tenant communication activities during the transition period:
Major Tenant Introductions. Fairwater PM should schedule introductory meetings or telephone calls with all "Major Tenants" — defined for purposes of this memorandum as tenants with annual base rent equal to or greater than $1,500,000 per annum — within 30 days of Closing, i.e., by no later than July 6, 2024. These meetings are an opportunity for Fairwater PM's leadership to introduce themselves, learn about the tenant's operational needs and priorities, and begin building a constructive landlord-tenant relationship. The top five tenants that should be prioritized are:
1.  Cascade Supply Chain Solutions Inc. ($8,736,000 ABR)
2.  Zynvaro Distribution Holdings LLC ($7,532,000 ABR)
3.  Thornton-Whitaker Pharmaceuticals Corp. ($6,180,000 ABR)
4.  Birchwood Technology Group Inc. ($5,668,000 ABR)
5.  Atlas Freight Logistics Corp. ($5,330,000 ABR)
We recommend that Marcus Devereaux (EVP, Acquisitions) participate in the introductory meetings with the top five tenants, given the importance of these relationships to Portfolio performance.
On-Site Property Visits. Fairwater PM should conduct walk-throughs of all 14 properties, jointly with Argyle's on-site personnel and with Sean Kilpatrick, within 21 days of Closing, i.e., by no later than June 27, 2024. The purpose of these walk-throughs is to familiarize Fairwater PM's regional and on-site teams with:
•  Physical property conditions, including any deferred maintenance or outstanding repair items (see Section XI for a discussion of the PCA-identified immediate repair items);
•  Building systems and equipment, including HVAC, fire/life safety, elevator, and building management systems;
•  Tenant relationships and any ongoing tenant issues, disputes, or service requests;
•  On-site staff roles, responsibilities, and operating procedures;
•  Pending capital projects or tenant improvement work; and
•  Vendor relationships and service delivery performance.
Ongoing Tenant Relations. Following the initial transition, Fairwater PM should designate regional property managers for each state cluster and distribute updated contact cards to tenants. The recommended state clusters are:
•  Georgia / North Carolina: Covering Fairfield Logistics Center I, Fairfield Logistics Center II, Buckhead Place Office Tower, Peachtree Corners Logistics Center, and SouthPark Corporate Center (5 properties).
•  Texas: Covering Westlake Distribution Hub, Katy Freeway Logistics Park, and Alliance Commerce Center (3 properties).
•  Florida: Covering Lakeland Crossings Industrial, Southport Logistics Park, and Brickell Bay Office Building (3 properties).
•  Tennessee: Covering Murfreesboro Distribution Center, Cool Springs Office Park, and Mount Juliet Commerce Park (3 properties).
C. Outstanding SNDA Follow-Up
As a condition to Closing under the PSA, the Seller was required to deliver executed subordination, non-disturbance, and attornment agreements ("SNDAs") from all Major Tenants. At Closing, 34 of the 38 required Major Tenant SNDAs had been executed and delivered. Four SNDAs remained outstanding and were the subject of a post-closing carve-out, as documented in the SNDA Post-Closing Carve-Out Side Letter executed on June 6, 2024.
Pursuant to the Side Letter, $200,000 was held back from the Seller's proceeds at Closing and deposited with Commonwealth National Title Insurance Company (Kenneth Stanhope, SVP) as escrow agent, pending delivery of the four remaining SNDAs within 30 days post-Closing (i.e., by July 6, 2024).
C&H is pleased to confirm that all four remaining SNDAs were executed and delivered to Fairwater REIT on July 2, 2024, within the required 30-day period. The $200,000 holdback was released to the Seller promptly thereafter. This outcome was confirmed in C&H's SNDA Post-Closing Delivery Confirmation memorandum, a copy of which is on file. No further SNDA action is required from Fairwater PM.
D. Estoppel Certificate Records
As part of the Closing deliverables, the Seller obtained and delivered 79 executed tenant estoppel certificates, representing approximately 91.4% of the Portfolio's ABR ($68,371,200 of $74,800,000). This exceeds the 80% ABR threshold ($59,840,000) required under the PSA as a condition to Closing.
Copies of all 79 executed estoppel certificates are maintained in the closing binder. Fairwater PM should retain copies of these estoppels in the property files for each respective property, as they constitute important evidence of the tenants' acknowledgment of lease terms, rent amounts, security deposit balances, and the absence of defaults as of the Closing Date. The estoppel certificates may also be relevant for future financing, disposition, or dispute resolution purposes.
VII. Books, Records, and Data Systems Transfer
A. Financial Records
Under the TSA, Argyle is obligated to deliver to Fairwater PM all financial records for each Target Entity. This deliverable encompasses a comprehensive set of financial documentation, including:
•  General ledgers for each Target Entity, including historical data for the current and prior fiscal years;
•  Accounts receivable aging reports, reflecting all outstanding tenant balances, past-due amounts, and collection notes;
•  Accounts payable aging reports, reflecting all outstanding vendor invoices, accrued expenses, and payment status;
•  Bank statements for all Target Entity operating and security deposit accounts at Magnolia Commerce Bank, for at least the prior 24 months;
•  Current and historical rent rolls, including tenant names, suite numbers, lease dates, rent commencement dates, rental rates, escalation schedules, and lease expiration dates;
•  Operating budgets for the current fiscal year and, to the extent available, budget-to-actual variance analyses;
•  Capital expenditure records, including project descriptions, contractor information, costs incurred, and completion status;
•  Copies of federal, state, and local tax returns for each Target Entity for at least the prior three fiscal years;
•  Insurance claims history, including a summary of all claims filed, claim status (open or closed), and amounts recovered.
Delivery Format: Argyle is required to deliver the financial records in both electronic format (including data exports from Argyle's accounting and property management software) and hard copy where original documents exist. Electronic deliverables should be provided in a commonly accessible format (e.g., Excel, PDF, or CSV), and any software-specific file formats should be accompanied by a data dictionary or field mapping guide to facilitate import into Fairwater PM's systems.
Target Completion: Within 30 days of Closing — i.e., by no later than July 6, 2024.
B. Lease Files
Argyle must transfer complete lease files for all 87 leases in the Portfolio. Each lease file should include:
•  Original (or conformed copies of) executed lease agreements;
•  All amendments, modifications, extensions, and renewals;
•  Rent commencement letters and confirmation of commencement date;
•  Landlord-tenant correspondence, including notices, default notices (if any), and cure letters;
•  Tenant insurance certificates on file;
•  Letters of credit, guarantees, or other credit support documentation;
•  Tenant improvement allowance documentation and draw records; and
•  Any other lease-related documentation maintained by Argyle.
For physical lease files stored at Argyle's Atlanta office (3300 Peachtree Road NE, Suite 2200, Atlanta, GA 30326), Argyle is to arrange for the transfer of these files to Fairwater PM's office in Columbia, Maryland, or to the applicable regional property management office designated by Fairwater PM. Electronic copies of the lease files were previously made available in the due diligence data room and should be verified against the physical files for completeness.
C. Property Management Software
Argyle utilizes a proprietary property management software system for the administration of the Portfolio. Under the TSA, Argyle is required to provide complete data exports from its system for all 14 properties, in a format suitable for import into Fairwater PM's own property management platform. The data export should include, at minimum:
•  Tenant master data (name, contact information, lease terms, billing information);
•  Vendor master data (name, contact information, contract terms, payment history);
•  Work order history and pending maintenance requests;
•  Preventive maintenance schedules;
•  Historical financial transactions (rent receipts, AP transactions, journal entries); and
•  Utility consumption data and billing records.
Argyle has agreed to cooperate with Fairwater PM's IT team during the data migration process, including making Argyle's systems personnel available for technical support and troubleshooting. Fairwater PM should initiate the data migration process as early in the transition period as possible to allow for adequate testing and reconciliation before the AP/payroll cutover date of August 1, 2024.
D. Warranty and Guaranty Files
Argyle must also transfer all building warranties, equipment warranties, contractor guarantees, and related documentation for each property. This is particularly important for the newer logistics properties in the Portfolio that were constructed between 2019 and 2021, as these properties may still be within the warranty or guarantee period for major building components, including:
•  Roof membranes and roofing systems (typically 20-year manufacturer's warranty);
•  HVAC systems and equipment (typically 5- to 10-year manufacturer's warranty);
•  Elevator systems (typically 1- to 5-year warranty);
•  Structural components and building envelope;
•  Paving, parking areas, and site improvements;
•  Fire sprinkler and fire alarm systems; and
•  Building management and controls systems.
Fairwater PM should review all warranty documentation carefully and maintain an organized warranty tracking system to ensure that warranty claims are submitted promptly and within applicable deadline periods.
VIII. Insurance Transition
A. Existing Coverage
As part of the due diligence process, C&H reviewed all existing property and liability insurance policies maintained by the Target Entities and Argyle in the Insurance Coverage Review Memorandum (dated May 20, 2024). That review identified certain coverage gaps and expiration dates that required attention prior to or at Closing. The coverage gaps identified were addressed through the procurement of replacement policies, as described below.
B. New Buyer Policies
Replacement property and casualty insurance policies for the entire Portfolio were bound with Ironclad Indemnity Insurance Company (500 College Road East, Princeton, NJ 08540), effective as of the Closing Date (June 6, 2024). The replacement policies were procured through Fairwater PM's insurance broker:
Hartwick Gunderson & Associates, Inc. 100 North Charles Street, Suite 1200 Baltimore, MD 21201 Account Executive: Peter Langford
The replacement policies provide comprehensive coverage for the Portfolio, including property (all-risk) coverage, commercial general liability, umbrella/excess liability, business income and extra expense, flood, earthquake (where applicable), terrorism (TRIA), and environmental liability.
Lender Insurance Requirements. Under the assumed loan documents, each mortgage lender requires evidence of insurance coverage meeting specified minimum requirements. Certificates of insurance evidencing the replacement coverage must be distributed to each of the three mortgage lenders:
1.  Pinnacle Federal Bank, N.A. — $421,600,000 outstanding principal balance (8 logistics properties)
2.  Veltrano Capital Lending Corp. — $142,300,000 outstanding principal balance (4 office properties)
3.  Sycamore Life Insurance Company — $48,100,000 outstanding principal balance (2 logistics properties)
Fairwater PM should coordinate with Peter Langford at Hartwick Gunderson to ensure that certificates of insurance are prepared and delivered to each lender promptly, and in any event within any deadlines specified in the loan documents. Certificates should name each lender (and its successors and assigns) as an additional insured and loss payee, as applicable.
Tenant Insurance Requirements. Certain leases require the landlord to provide tenants with certificates of insurance upon request. Fairwater PM should be prepared to provide such certificates to tenants as needed, through Hartwick Gunderson.
C. R&W Insurance
In connection with the acquisition, Fairwater REIT procured a buyer-side representations and warranties ("R&W") insurance policy from Sentinel Specialty Insurance Company. The key terms of the R&W policy are as follows:
•  Policy Limit: $55,000,000
•  Retention (Self-Insured Retention): $11,000,000, dropping to $5,500,000 at 12 months post-Closing (June 6, 2025)
•  Premium: $1,402,500, paid at Closing
•  General Representation Survival Period: 18 months (through December 6, 2025)
•  Tax Representation Survival Period: 36 months (through June 6, 2027)
The R&W policy provides Fairwater REIT with insurance coverage for losses arising from breaches of the Seller's representations and warranties under the PSA, subject to the retention, policy limit, and other terms and conditions of the policy.
Important Note for Fairwater PM: Fairwater PM should be aware of the existence and scope of the R&W policy and should immediately report any potential claims or suspected breaches of the Seller's representations and warranties to:
(a) David Elgin Park, General Counsel, Fairwater REIT; and (b) Douglas Fairchild, Responsible Partner, Calderwood & Harkness LLP.
Prompt reporting is essential to preserve Fairwater REIT's rights under both the PSA and the R&W policy. Potential claims could arise in connection with undisclosed environmental conditions, title defects, undisclosed lease defaults, undisclosed litigation, tax liabilities, or other matters covered by the Seller's representations.
D. Argyle Policies During Transition
As discussed in Section III.D above, Argyle is required under the TSA to maintain its own insurance policies — including professional liability / errors and omissions coverage — through the TSA period. Fairwater PM should request and maintain on file a current certificate of insurance from Argyle evidencing the required coverages and confirming that policies remain in effect through the TSA Expiration Date of September 4, 2024.
IX. Assumed Debt — Lender Compliance and Notification
A. Overview
As part of the acquisition, Fairwater REIT assumed aggregate outstanding mortgage indebtedness of approximately $612,000,000 across three lenders. The assumed debt is summarized as follows:
All lender consents to the change of ownership were obtained prior to Closing. In connection with the assumption, Fairwater REIT executed replacement guaranties in favor of each lender, with the following financial covenants:
•  Minimum Tangible Net Worth: $500,000,000 (tested at each reporting date)
•  Minimum Liquid Assets: $50,000,000 (tested at each reporting date)
Fairwater PM should be aware that these financial covenants are ongoing obligations of Fairwater REIT and that any breach could constitute an event of default under the applicable loan agreements.
B. Lender Reporting Obligations
Each loan agreement contains detailed reporting requirements that Fairwater PM must ensure are satisfied on a timely basis. The reporting requirements vary by lender, but generally include:
(i) Quarterly and annual financial statements for each Target Entity (borrower entity), including income statements, balance sheets, and cash flow statements;
(ii) Quarterly rent rolls, including tenant occupancy, rental rates, lease terms, and expiration dates;
(iii) Annual operating budgets for each property;
(iv) Annual occupancy reports and leasing activity summaries;
(v) Certificates of insurance evidencing required coverage;
(vi) Copies of material new leases and lease amendments (typically required within 30 days of execution);
(vii) Annual audited financial statements of the guarantor (Fairwater REIT); and
(viii) Prompt notice of any material adverse event, casualty, condemnation, environmental condition, or other event that could materially affect the value or operations of the secured properties.
During the first 30 days of the transition period, Fairwater PM should obtain from Argyle (and confirm directly with each lender) the specific reporting deadlines, formats, and delivery requirements under each loan agreement. The lender contacts for reporting purposes are:
•  Pinnacle Federal Bank, N.A.: Bradley Carston, Senior Vice President
•  Veltrano Capital Lending Corp.: Denise Alvarado, Managing Director
•  Sycamore Life Insurance Company: Graham Hilliard, Vice President, Mortgage Investments
C. Debt Service Payment Coordination
Fairwater PM must confirm that all debt service payments — including monthly principal and interest — continue to be made timely from each Target Entity's operating account at Magnolia Commerce Bank. Failure to make a timely debt service payment would constitute an event of default under the applicable loan agreement and could trigger acceleration, penalties, and other adverse consequences.
During the transition period, Argyle should provide Fairwater PM with a detailed schedule of all upcoming debt service payment dates and amounts for each loan, including the method of payment (ACH, wire transfer, etc.) and the lender's payment instructions. Fairwater PM should verify that the automatic payment arrangements (if any) are functioning correctly and that adequate funds are maintained in each Target Entity's operating account to cover upcoming debt service obligations.
Upon completion of the signatory and ACH authorization updates at Magnolia Commerce Bank (as described in Section V.B), Fairwater PM should take affirmative steps to confirm that the debt service payment instructions remain accurate and that payments will continue to flow without interruption.
X. Regulatory, Licensing, and Filing Matters
A. Foreign Qualification Filings
Each Target Entity is a Delaware limited liability company that owns property in one of five states: Georgia, Texas, Florida, Tennessee, or North Carolina. Under applicable law, each Target Entity must be qualified to do business as a foreign limited liability company in the state where its property is located.
C&H is preparing updated foreign qualification filings for each Target Entity in its respective state of property location, reflecting the change in ownership to Fairwater REIT. These filings typically involve amendments to the certificate of authority or registration statement, updating the name and address of the registered agent (if changed), and reflecting the change in manager or managing member.
In addition, C&H is processing the following filings with the Delaware Secretary of State for all 14 Target Entities:
•  Certificates of Amendment (or Annual Reports, as applicable) reflecting the change in manager/managing member from the Greystone-affiliated management entity to Fairwater PM.
•  Updated registered agent information (if applicable).
Fairwater PM should provide C&H with any updated contact information, registered agent designations, or other information required to complete these filings. C&H anticipates that all Delaware and foreign qualification filings will be completed within 30 to 45 days of Closing.
B. Property Management Licensing
Fairwater PM must confirm that it holds (or promptly obtains) all required property management licenses, registrations, or permits in each of the five states in which the Portfolio properties are located. Property management licensing requirements vary significantly by state, and in some jurisdictions, specific licenses may be required for the management of commercial real property, the collection of rents, or the supervision of building maintenance and repair activities.
Fairwater PM should coordinate with local counsel in each jurisdiction to confirm compliance with all applicable licensing requirements:
C&H has engaged each of these local counsel firms to provide jurisdiction-specific guidance on licensing requirements and to assist with any necessary applications or registrations. Fairwater PM should respond promptly to any information requests from local counsel to avoid delays in obtaining required licenses.
C. Business Tax Registrations
Fairwater PM must ensure that each Target Entity's state and local business tax registrations, sales tax permits (where applicable), and occupational licenses are updated to reflect the new ownership and management. This includes:
(i) State business income tax registrations and withholding tax registrations;
(ii) State and local sales and use tax permits (if applicable to any leasing or services activities);
(iii) Local occupational or business license taxes (applicable in certain counties and municipalities in Georgia, Florida, and Tennessee);
(iv) Personal property tax filings (for furniture, fixtures, and equipment owned by each Target Entity); and
(v) Any other state or local registrations, permits, or filings required in connection with the ownership and operation of the properties.
Fairwater PM should coordinate with Ashford Prewitt LLP (Martin Ashford, CPA, Engagement Partner; Naomi Ikeda, CPA, Tax Partner) and with local counsel to identify all required registrations and to ensure timely compliance.
XI. Property Condition — Immediate Repair Items
As part of the due diligence process, property condition assessments ("PCAs") were performed for all 14 properties in the Portfolio by Rampart Building Sciences, Inc., under the supervision of Alan Westbrook, P.E., Project Manager. C&H summarized the PCA findings in the PCA Review Memorandum (dated May 22, 2024).
The PCAs identified an aggregate of $2,140,000 in estimated immediate repair costs across four properties. "Immediate repair" items are defined as repairs recommended for completion within the first 12 months following the assessment date to address observed deficiencies, code compliance issues, or conditions that could deteriorate or result in increased costs if left unaddressed. The breakdown of immediate repair costs by property is as follows:
At Closing, the Buyer received a PCA credit equal to 50% of the aggregate estimated immediate repair costs — i.e., $1,070,000 — applied as a reduction to the purchase price. The adjusted purchase price, after the PCA credit, was $1,098,930,000.
Action Required. Fairwater PM should prioritize these immediate repair items and develop a capital expenditure schedule for execution during or immediately following the 90-day transition period. For each property, Fairwater PM should:
(a) Obtain competitive bids from qualified contractors for the identified repair work; (b) Develop a scope of work and project timeline for each repair item; (c) Coordinate with any affected tenants regarding access requirements, noise, or temporary disruptions; (d) Monitor warranty coverage to determine whether any of the identified deficiencies may be covered under existing building or equipment warranties (see Section VII.D); and (e) Track actual repair costs against the PCA estimates for internal budgeting and reporting purposes.
Environmental Conditions. In addition to the PCA findings, Fairwater PM should be aware of de minimis recognized environmental conditions ("RECs") identified in the Phase I Environmental Site Assessments performed by Trident Environmental Group LLC (Rachel Kwan, Senior Environmental Scientist). Specifically:
•  Lakeland Crossings Industrial (Lakeland, FL): The Phase I ESA identified a de minimis REC related to historical agricultural use of a portion of the site. No Phase II investigation was recommended, and no remediation is required at this time. However, Fairwater PM should maintain environmental compliance protocols, including periodic monitoring and adherence to any applicable environmental regulatory requirements.
•  Westlake Distribution Hub (Houston, TX): The Phase I ESA identified a de minimis REC related to the presence of a former dry-cleaning operation on an adjacent parcel. No Phase II investigation was recommended, and no remediation is required, but ongoing monitoring of any groundwater conditions in the vicinity is recommended as a precautionary measure.
Fairwater PM should include these environmental items in its ongoing environmental compliance tracking and should immediately report any changes in conditions or any discovery of new environmental issues to David Elgin Park (General Counsel) and Douglas Fairchild (C&H), as such conditions could implicate the Seller's environmental representations under the PSA and the R&W insurance policy.
XII. Post-Closing Proration True-Up Coordination
A. True-Up Framework
A preliminary closing proration statement was agreed upon by the Buyer and the Seller at Closing (June 6, 2024), reflecting estimated prorations for various operating items through the Closing Date. Under the PSA, the parties are required to prepare and agree upon a final proration true-up within 90 days of Closing — i.e., by no later than September 4, 2024.
The following categories of items are subject to the post-closing proration true-up:
(i) Real Property Taxes. The 2024 estimated annual real property taxes for the Portfolio total approximately $14,760,000. The Seller's prorated share through June 6, 2024 is estimated at $6,332,951. Actual 2024 tax bills may differ from estimates, and the final proration will be adjusted to reflect actual