1036-00004 · Client 1036 · Tax

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT COMMUNICATION

CALDERWOOD & HARKNESS LLP One Liberty Plaza, 40th Floor New York, New York 10006

TO: Douglas Fairchild, Responsible Partner, Real Estate Practice Group Angela Fontaine, Billing Partner, Real Estate Practice Group

FROM: Sylvia Hartwell, Specialist Partner, Tax Practice Group Rafael Dominguez, Working Associate, Real Estate Practice Group

DATE: November 20, 2023

RE: FIRPTA Analysis — Acquisition of 14-Property Sun Belt Portfolio from Greystone Meridian Partners Fund III, L.P.

MATTER NO.: 1036-00004

CLIENT: Fairwater Real Estate Investment Trust

I. Executive Summary

The purpose of this memorandum is to analyze whether the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), codified at Sections 897 and 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), imposes any withholding obligation on Fairwater Real Estate Investment Trust ("Fairwater" or "Buyer") in connection with its proposed acquisition of one hundred percent (100%) of the membership interests in fourteen (14) property-owning Delaware limited liability companies (collectively, the "Target Entities") from Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or "Seller") for an aggregate purchase price of One Billion One Hundred Million Dollars ($1,100,000,000) (the "Transaction").

Conclusion. Based on our review of the relevant statutory and regulatory provisions, the organizational documents of GMP Fund III, and the factual record as currently understood, we conclude that GMP Fund III is a domestic limited partnership organized under the laws of the State of Delaware and is not a "foreign person" within the meaning of Section 1445 of the Code. Accordingly, FIRPTA withholding under Section 1445(a) is not required in connection with the Transaction. Fairwater has no obligation to deduct and withhold any portion of the purchase price, and Fairwater is not required to file IRS Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) or Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests) in connection with the closing.

Belt-and-Suspenders Recommendation. Notwithstanding the foregoing conclusion, we recommend — consistent with prevailing market practice in large-scale commercial real estate transactions — that Seller deliver at closing a non-foreign person affidavit (a "FIRPTA Certificate") conforming to the requirements of Treasury Regulation § 1.1445-2(b)(2). The form of such FIRPTA Certificate has been drafted and is included as Exhibit O to the Purchase and Sale Agreement (the "PSA"). This protective measure serves two important functions. First, it eliminates any residual risk of buyer liability under Section 1445(a) in the unlikely event that Seller's domestic status is later called into question or mischaracterized in any audit or examination. Second, it provides comfort to Commonwealth National Title Insurance Company ("Commonwealth Title"), acting as escrow agent and title insurer in the Transaction, which has indicated through Kenneth Stanhope, SVP, Title Officer, that delivery of a FIRPTA Certificate is a Schedule B-I requirement under each of the fourteen (14) title commitments issued in connection with the underlying real properties.

This memorandum sets forth the relevant statutory and regulatory framework, applies that framework to the facts of the Transaction, surveys applicable state-level FIRPTA-analogous provisions, and provides our specific recommendations regarding closing deliverables.

II. Transaction Overview

The following summarizes the material facts relevant to the FIRPTA analysis. This summary is based on our review of the PSA and related transaction documents, publicly available organizational filings, and information provided by both Buyer's and Seller's counsel.

Buyer. Fairwater Real Estate Investment Trust ("Fairwater" or "Buyer") is a Maryland real estate investment trust that has elected to be treated as a real estate investment trust for federal income tax purposes under Sections 856 through 860 of the Code. Fairwater is publicly traded on the New York Stock Exchange under the ticker symbol "FREIT." Fairwater's principal offices are located at 7200 Chesapeake Parkway, Suite 1100, Columbia, Maryland 21044. Fairwater's Employer Identification Number is 52-2198437. Fairwater's in-house legal team is led by David Elgin Park, General Counsel, and Camille Oduya, Deputy General Counsel. Calderwood & Harkness LLP serves as outside real estate and tax counsel to Fairwater in connection with the Transaction.

Seller. Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or "Seller") is a Delaware limited partnership formed under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq. GMP Fund III maintains its registered agent at 1209 Orange Street, Wilmington, Delaware 19801, through Pemberton Industries. GMP Fund III's principal office is located at 3300 Peachtree Road NE, Suite 2200, Atlanta, Georgia 30326. GMP Fund III's Employer Identification Number, as assigned by the Internal Revenue Service, is 83-1647205. GMP Fund III is a commingled real estate investment fund focused on the acquisition, management, and disposition of logistics and office properties in high-growth Sun Belt markets across the southeastern United States. GMP Fund III is represented in the Transaction by Blackridge Hayes LLP, with Nathaniel Pryce serving as lead partner and Thomas Keating serving as senior associate.

General Partner of Seller. The sole general partner of GMP Fund III is Greystone Meridian Capital LLC ("GMC"), a Delaware limited liability company. GMC's Employer Identification Number is 83-1520984. GMC is co-managed by its founding principals, Victor Lansdell and Elise Rathborne. GMC is authorized under the limited partnership agreement of GMP Fund III to execute documents and take actions on behalf of GMP Fund III in connection with the disposition of fund assets, including the execution of the PSA and all closing deliverables contemplated thereby.

Transaction Structure. The Transaction is structured as an entity-level acquisition. Fairwater will acquire one hundred percent (100%) of the outstanding membership interests in each of the fourteen (14) Target Entities. Each Target Entity is a single-purpose Delaware limited liability company formed for the sole purpose of holding, operating, and managing a single logistics or office property. The Target Entities and their underlying properties are located across five states in the Sun Belt region: Georgia, Texas, Florida, Tennessee, and North Carolina. By acquiring the membership interests in each Target Entity, rather than the underlying real properties themselves, Fairwater will obtain indirect ownership of the fourteen (14) properties while preserving the existing entity structures, financing arrangements, and, where applicable, property tax treatment at the local level.

Purchase Price. The aggregate purchase price for the Transaction is One Billion One Hundred Million Dollars ($1,100,000,000). The purchase price is comprised of approximately Six Hundred Twelve Million Dollars ($612,000,000) of assumed mortgage indebtedness encumbering the properties held by the Target Entities, and approximately Four Hundred Eighty-Eight Million Dollars ($488,000,000) in cash equity to be paid at closing. The assumed mortgage debt consists of individual non-recourse loans secured by first-priority deeds of trust or mortgages on each of the fourteen (14) underlying properties, held by various institutional lenders.

USRPI Status. The membership interests in each of the Target Entities constitute "United States real property interests" ("USRPIs") within the meaning of Section 897(c)(1) of the Code. This is because each Target Entity is the functional equivalent of a "United States real property holding corporation" — that is, its assets consist predominantly, if not exclusively, of interests in real property located within the United States. Specifically, each Target Entity's sole material asset is a fee simple or leasehold interest in a logistics or office property located in one of the five Sun Belt states. Because the fair market value of the U.S. real property interests held by each Target Entity equals or exceeds fifty percent (50%) of the fair market value of the sum of (i) such Target Entity's U.S. real property interests, (ii) its interests in real property located outside the United States, and (iii) its other trade or business assets, each Target Entity satisfies the USRPI holding corporation test under Section 897(c)(2) of the Code. Therefore, the membership interests in each Target Entity are themselves USRPIs.

As a result, the disposition of these membership interests by GMP Fund III triggers a FIRPTA analysis to determine whether Fairwater, as the transferee, has a withholding obligation under Section 1445(a) of the Code. The balance of this memorandum addresses that question.

III. FIRPTA Statutory Framework

FIRPTA was enacted as part of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2682, to address a perceived inequity in the pre-1980 treatment of foreign investors who realized gain on dispositions of U.S. real property. Prior to FIRPTA, gains from the sale of U.S. real property by foreign persons were generally not subject to U.S. federal income tax unless the gain was effectively connected with a U.S. trade or business. FIRPTA closed this gap by treating gains from the disposition of USRPIs by foreign persons as effectively connected income and by imposing a withholding mechanism on transferees to ensure collection.

FIRPTA is principally codified in two sections of the Code: Section 897, which establishes the substantive tax rule, and Section 1445, which establishes the withholding mechanism.

A. Section 897 — Taxation of Dispositions of USRPIs by Foreign Persons

Section 897(a) of the Code provides the foundational rule that gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account as if such gain or loss were effectively connected with the conduct of a trade or business within the United States. This provision overrides the general rule that capital gains of foreign persons are not subject to U.S. tax unless effectively connected with a U.S. trade or business, and ensures that foreign persons disposing of USRPIs are subject to U.S. federal income tax on any resulting gain at the regular graduated rates (for individuals) or the applicable corporate rate (for corporations).

Section 897(c)(1) defines the term "United States real property interest" broadly. A USRPI includes: (i) an interest in real property (including interests in mines, wells, or other natural deposits) located in the United States or the United States Virgin Islands; and (ii) any interest (other than an interest solely as a creditor) in any domestic corporation that is, or was at any time during the shorter of the period after June 18, 1980, during which the taxpayer held such interest, or the five-year period ending on the date of the disposition, a United States real property holding corporation. Section 897(c)(2) defines a "United States real property holding corporation" as any corporation if the fair market value of the United States real property interests held by such corporation equals or exceeds 50 percent of the fair market value of the sum of its United States real property interests, its interests in real property located outside the United States, and any other of its assets which are used or held for use in a trade or business.

Section 897(g) extends the FIRPTA regime to partnership interests. Specifically, under Section 897(g), under regulations prescribed by the Secretary, a nonresident alien individual or foreign corporation that disposes of an interest in a partnership, trust, or estate shall be treated under Section 897(a) to the extent that gain or loss attributable to the disposition is attributable to United States real property interests held by such partnership, trust, or estate. This look-through rule ensures that a foreign person cannot avoid FIRPTA by holding U.S. real property indirectly through a partnership or other pass-through entity.

It is important to note that Section 897 applies only to "nonresident alien individuals" and "foreign corporations." A domestic partnership, by contrast, is not itself a taxpayer for federal income tax purposes under the Code's partnership taxation regime (Subchapter K), and gains recognized at the partnership level flow through to the individual partners. The characterization of those gains as effectively connected income under Section 897 is determined at the partner level, not the partnership level.

B. Section 1445 — Withholding Obligation

Section 1445 establishes the enforcement mechanism for FIRPTA by imposing a withholding obligation on the transferee (buyer) of a USRPI. This withholding obligation is designed to ensure that the IRS collects tax on the gain realized by a foreign person on the disposition of a USRPI, even where the foreign person might otherwise leave the United States without filing a return or paying tax.

Section 1445(a) provides the general rule: "Except as otherwise provided in this section, in the case of any disposition of a United States real property interest (as defined in section 897(c)) by a foreign person, the transferee shall be required to deduct and withhold a tax equal to 15 percent of the amount realized on the disposition." The "amount realized" generally means the total purchase price, including the fair market value of any property received and any liabilities assumed by the transferee in connection with the acquisition. The withholding rate was increased from 10 percent to 15 percent by the Protecting Americans from Tax Hikes Act of 2015 (the "PATH Act"), effective February 17, 2016, for dispositions occurring on or after that date.

The obligation to withhold under Section 1445(a) is triggered only if the transferor is a "foreign person." The term "foreign person" is defined in Section 1445(f)(3) and Treasury Regulation § 1.1445-2(a) to mean any person other than a United States person within the meaning of Section 7701(a)(30) of the Code. Specifically, a "foreign person" includes: (i) a nonresident alien individual; (ii) a foreign corporation; (iii) a foreign partnership; (iv) a foreign trust; and (v) a foreign estate. Conversely, a domestic entity — including a domestic partnership — is a "United States person" and is not a "foreign person." Accordingly, if the transferor of a USRPI is a domestic partnership, Section 1445(a) withholding does not apply.

The consequences of a transferee's failure to withhold when required can be significant. Under Section 1445(a) and Treasury Regulation § 1.1445-1(e), the transferee may be held personally liable for the amount of tax required to be withheld, plus interest and applicable penalties. For a transaction of the magnitude at issue here — with a purchase price of $1,100,000,000 — the potential withholding liability under Section 1445(a), if triggered, would be $165,000,000 (15 percent of $1,100,000,000), making a careful analysis of the transferor's status essential.

C. Treasury Regulation § 1.1445-2(b)(2) — Non-Foreign Affidavit Exception

Even in circumstances where withholding is not technically required because the transferor is not a foreign person, Treasury Regulation § 1.1445-2(b)(2) provides a safe harbor mechanism that affords important protection to the transferee. Under this regulation, a transferee of a USRPI is not required to withhold under Section 1445(a) if the transferee receives, prior to or at the time of the transfer, a written certification from the transferor stating, under penalty of perjury, that the transferor is not a foreign person.

The regulation sets forth specific requirements for a qualifying non-foreign person certification. The certification must include: (i) the name of the transferor; (ii) the transferor's United States taxpayer identification number ("TIN") — in the case of an entity, its Employer Identification Number; (iii) the transferor's home address (in the case of an individual) or office address (in the case of an entity); and (iv) a statement that the transferor is not a foreign person. Treasury Regulation § 1.1445-2(b)(2)(i) further requires that the certification be signed under penalty of perjury. Where the transferor is a partnership, the certification must be signed by a general partner. Where the transferor is a limited liability company classified as a partnership for tax purposes, the certification must be signed by a manager or authorized member.

Critically, if the transferee receives a qualifying non-foreign person certification and does not have "actual knowledge" that the certification is false, the transferee is fully relieved of any obligation to withhold under Section 1445(a). The "actual knowledge" standard is a high bar — the transferee need not undertake any independent investigation into the truthfulness of the certification; constructive knowledge or reason to know is insufficient. See Treasury Regulation § 1.1445-2(b)(2)(i). This safe harbor thus provides a robust shield for a transferee that obtains a conforming FIRPTA Certificate.

The transferee must retain the non-foreign person certification for a period of five years following the date of the transfer and must make it available for inspection upon request by the Internal Revenue Service. See Treasury Regulation § 1.1445-2(b)(2)(iv).

IV. Analysis of Seller's Status

A. GMP Fund III Is a Domestic Partnership

The determinative question under Section 1445(a) is whether GMP Fund III, as the transferor of the membership interests in the Target Entities, is a "foreign person." For the reasons set forth below, the answer is no.

GMP Fund III's full legal name is Greystone Meridian Partners Fund III, L.P. It is a limited partnership formed and existing under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq. GMP Fund III's Certificate of Limited Partnership was duly filed with the Secretary of State of the State of Delaware, and GMP Fund III maintains its registered agent at 1209 Orange Street, Wilmington, Delaware 19801, through Pemberton Industries. GMP Fund III has been assigned Employer Identification Number 83-1647205 by the Internal Revenue Service, confirming its status as a recognized domestic entity for federal tax purposes.

Under Section 7701(a)(4) of the Code, the term "domestic," when applied to a partnership, means a partnership "created or organized in the United States or under the law of the United States or of any State." Treasury Regulation § 301.7701-5(a) confirms this definition, providing that "[a] business entity (including an entity that is disregarded as separate from its owner under § 301.7701-3) is domestic if it is created or organized in the United States or under the law of the United States or of any State." Because GMP Fund III was organized under the laws of the State of Delaware — one of the fifty states of the United States — GMP Fund III is a "domestic" partnership within the meaning of Section 7701(a)(4) and Treasury Regulation § 301.7701-5(a).

As discussed in Section III.B above, the term "foreign person" for purposes of Section 1445 does not include a domestic partnership. A domestic partnership is a "United States person" within the meaning of Section 7701(a)(30)(D) of the Code, which defines "United States person" to include "any domestic partnership." Because GMP Fund III is a domestic partnership and therefore a United States person, GMP Fund III is not a "foreign person" under Section 1445(f)(3). Accordingly, Section 1445(a) withholding is not applicable to the Transaction, and Fairwater has no obligation to deduct or withhold any portion of the purchase price.

We have confirmed GMP Fund III's domestic status through the following diligence steps:

(i) Review of GMP Fund III's Certificate of Limited Partnership, as filed with the Delaware Secretary of State and as reflected in the Delaware Division of Corporations' online records, confirming GMP Fund III's formation under Delaware law;

(ii) Review of GMP Fund III's Limited Partnership Agreement, dated as of March 15, 2018, which designates Delaware as the jurisdiction of organization and identifies Greystone Meridian Capital LLC as the sole general partner;

(iii) Confirmation that GMP Fund III holds a valid Employer Identification Number (83-1647205) issued by the Internal Revenue Service;

(iv) Review of GMP Fund III's most recently available IRS Form 1065 (U.S. Return of Partnership Income) for the taxable year ended December 31, 2022, which identifies GMP Fund III as a domestic partnership; and

(v) Representations made by Seller's counsel, Blackridge Hayes LLP (Nathaniel Pryce), confirming GMP Fund III's status as a domestic limited partnership organized under the laws of Delaware.

Based on the foregoing, we are satisfied that GMP Fund III is a domestic partnership and not a "foreign person" for purposes of Section 1445 of the Code.

B. General Partner Confirmation

As noted above, the sole general partner of GMP Fund III is Greystone Meridian Capital LLC ("GMC"), a Delaware limited liability company with Employer Identification Number 83-1520984. GMC was formed under the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., and is itself a domestic entity organized under the laws of the State of Delaware. GMC's managing members and co-founders are Victor Lansdell and Elise Rathborne, each of whom we understand to be United States citizens and residents based on information provided by Seller's counsel.

Although the FIRPTA withholding analysis under Section 1445(a) turns on the entity-level status of the transferor (GMP Fund III) rather than on the citizenship or residency of the general partner's individual members, the domestic status of GMC provides an additional layer of factual comfort. GMC will be the entity executing the FIRPTA Certificate on behalf of GMP Fund III, and its own domestic status ensures that the signing entity is itself a United States person.

C. Look-Through Issues — Not Applicable

A question that commonly arises in FIRPTA analyses involving partnership transferors is whether the buyer must "look through" the domestic partnership to its underlying partners — and, if any of those partners are foreign persons, whether a withholding obligation arises at the buyer level. In this case, the answer is clearly no, for the following reasons.

Section 1446 Does Not Create a Buyer Withholding Obligation. Section 1446 of the Code imposes a withholding obligation on a partnership that has effectively connected taxable income ("ECTI") allocable to foreign partners. Specifically, Section 1446(a) provides that, if a partnership has ECTI for any taxable year and any portion of such income is allocable to a foreign partner, the partnership shall pay a withholding tax on behalf of such foreign partner. However, Section 1446 imposes this obligation on the partnership itself (in this case, GMP Fund III) acting as a withholding agent with respect to its own partners — it does not impose any withholding obligation on a third-party transferee such as Fairwater. The Section 1446 analysis is wholly separate from, and does not affect, the Section 1445 analysis applicable to Fairwater.

The Transferor, Not Its Partners, Determines Section 1445 Withholding. Under Section 1445(a), the withholding obligation arises only if the "transferor" — the person disposing of the USRPI — is a foreign person. In this Transaction, the transferor of the membership interests in the Target Entities is GMP Fund III. GMP Fund III is a domestic partnership. The analysis ends there. The Code does not require a transferee to look through a domestic partnership transferor to the individual partners of that partnership to determine whether any of those partners are themselves foreign persons. This is consistent with the fundamental principle of entity-level classification under Section 7701 — a partnership's domestic or foreign status is determined by reference to the jurisdiction of its organization, not the nationality or residency of its partners.

Foreign Partners in GMP Fund III — Irrelevant to Fairwater's Obligations. Even if GMP Fund III's limited partner base includes one or more foreign limited partners — a fact we have neither confirmed nor investigated, as it is not relevant to this analysis — this would not convert GMP Fund III into a "foreign person" for Section 1445 purposes. GMP Fund III's own obligation, if any, to withhold under Section 1446 on ECTI allocable to its foreign partners (including any ECTI arising from the gain on this Transaction) is an internal obligation of GMP Fund III and has no bearing whatsoever on Fairwater's position as a transferee under Section 1445. Fairwater need not inquire into, and bears no responsibility for, GMP Fund III's compliance with Section 1446.

We note for completeness that Section 1446(f), enacted by the Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, imposes a withholding obligation on a transferee that acquires a partnership interest from a foreign transferor where any portion of the gain on the disposition would be treated as effectively connected income under Section 864(c)(8). However, Section 1446(f) applies to the acquisition of partnership interests, and the transferor must be a foreign person. In this Transaction, Fairwater is acquiring membership interests in the Target Entities (which are LLCs classified as disregarded entities or partnerships, not interests in GMP Fund III itself), and the transferor is GMP Fund III, a domestic partnership. Section 1446(f) is therefore not applicable.

V. FIRPTA Withholding Certificate — Not Required

In certain transactions involving foreign transferors, a transferee may apply to the Internal Revenue Service for a "withholding certificate" under Section 1445(b)(4) and Treasury Regulation § 1.1445-3 to reduce the amount of withholding required under Section 1445(a). A withholding certificate may be issued by the IRS where, for example, the transferor's maximum tax liability on the disposition is less than 15 percent of the amount realized, or where the transferor enters into an agreement with the IRS to pay the applicable tax in installments.

Because GMP Fund III is not a foreign person, Fairwater has no withholding obligation under Section 1445(a) in the first instance. Accordingly, there is no need for Fairwater to apply for a withholding certificate from the IRS under Section 1445(b)(4) or Treasury Regulation § 1.1445-3. This conclusion avoids the delay and administrative burden that a withholding certificate application would impose — the IRS generally takes 90 days to process such applications, which would be incompatible with the Transaction's closing timeline.

Furthermore, no IRS Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) or Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests) is required to be filed by Fairwater in connection with the Transaction. Form 8288 is required to be filed by a transferee only when withholding is actually required under Section 1445(a) — i.e., when the transferor is a foreign person. Since GMP Fund III is a domestic partnership and no withholding is required, no Form 8288 or 8288-A filing obligation arises.

VI. Belt-and-Suspenders: Non-Foreign Person Affidavit (FIRPTA Certificate)

A. Rationale. Although our analysis confirms that FIRPTA withholding is not legally required in connection with this Transaction, we nevertheless strongly recommend, as a matter of best practice and risk management, that Seller deliver a non-foreign person affidavit (the "FIRPTA Certificate") at closing.

This recommendation is grounded in several considerations. First, the delivery and retention of a conforming FIRPTA Certificate provides Fairwater with a documentary safe harbor under Treasury Regulation § 1.1445-2(b)(2). In the unlikely event that the IRS were to challenge or question Seller's domestic status in connection with an audit or examination — whether due to administrative error, a successor fund reorganization, or any other unforeseen circumstance — the FIRPTA Certificate would provide Fairwater with conclusive evidence that it acted in reliance on Seller's sworn certification and therefore has no personal liability for any withholding that might otherwise have been required. Under the Treasury Regulations, a transferee that holds a conforming non-foreign person certification and has no "actual knowledge" that the certification is false is fully relieved of withholding liability, even if the certification later proves to have been incorrect.

Second, the delivery of a FIRPTA Certificate is a standard market requirement in large commercial real estate transactions. Title insurance companies uniformly require the delivery of a FIRPTA Certificate (or evidence that withholding has been properly applied) as a condition to the issuance of an owner's title insurance policy. In this Transaction, Commonwealth National Title Insurance Company, through Kenneth Stanhope, SVP, Title Officer, has indicated that the delivery of a FIRPTA Certificate from GMP Fund III is a Schedule B-I requirement in each of the fourteen (14) title commitments issued in connection with the underlying properties held by the Target Entities. Failure to deliver the FIRPTA Certificate could result in the inclusion of a FIRPTA exception on the title policies, which would be commercially unacceptable to Fairwater.

Third, the cost and burden of delivering a FIRPTA Certificate is minimal — it requires only the execution of a one-page affidavit under penalty of perjury — while the protection it affords is substantial. This is a classic "belt-and-suspenders" measure that provides meaningful risk mitigation at negligible cost.

B. Form of FIRPTA Certificate

We have prepared a form of non-foreign person affidavit that conforms to the requirements of Treasury Regulation § 1.1445-2(b)(2). This form has been included as Exhibit O to the PSA. The form FIRPTA Certificate has been circulated to Seller's counsel, Blackridge Hayes LLP, and has been approved without revision.

The FIRPTA Certificate will be executed by an authorized officer or representative of Greystone Meridian Capital LLC, in its capacity as general partner of GMP Fund III. As noted above, Treasury Regulation § 1.1445-2(b)(2) permits a general partner to execute the non-foreign person certification on behalf of a partnership transferor.

The FIRPTA Certificate includes the following required content:

(i) Full legal name of transferor: Greystone Meridian Partners Fund III, L.P.

(ii) Employer Identification Number: 83-1647205.

(iii) Office address: 3300 Peachtree Road NE, Suite 2200, Atlanta, Georgia 30326.

(iv) Non-foreign status statement: A statement that Greystone Meridian Partners Fund III, L.P. is not a foreign person, foreign corporation, foreign partnership, foreign trust, or foreign estate, as those terms are defined in the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

(v) Disclosure acknowledgment: An acknowledgment that the FIRPTA Certificate may be disclosed to the Internal Revenue Service by the transferee, and that any false statement contained therein could be punished by fine, imprisonment, or both.

(vi) Penalty of perjury signature: The signature of an authorized signatory of Greystone Meridian Capital LLC, as general partner of Greystone Meridian Partners Fund III, L.P., executed under penalty of perjury under the laws of the United States of America.

The FIRPTA Certificate is drafted to be a stand-alone document capable of being recorded in the real property records of the applicable county, although recording is not required under the Treasury Regulations and is not anticipated in this Transaction.

C. PSA Provisions

The PSA, which bears an effective date of February 28, 2024, contains provisions addressing FIRPTA compliance as follows:

(i) Closing Condition. The delivery of the executed FIRPTA Certificate in the form of PSA Exhibit O is a condition to Buyer's obligation to close the Transaction. Specifically, the PSA provides that Buyer's obligation to consummate the Transaction is conditioned upon, among other things, Seller's delivery at closing of a duly executed non-foreign person affidavit in the form attached as Exhibit O to the PSA. Failure of Seller to deliver the FIRPTA Certificate at closing would constitute a failure of a Buyer closing condition and would entitle Fairwater to decline to close without liability.

(ii) Seller Representation. The PSA includes a representation by Seller, in the article addressing Seller's Representations and Warranties, that Seller is not a "foreign person" within the meaning of Section 1445 of the Code, and that Seller is a domestic partnership organized under the laws of the State of Delaware.

(iii) Exhibit O. The PSA includes as Exhibit O the agreed form of the FIRPTA Certificate, which conforms to the requirements described in Section VI.B above.

These PSA provisions are adequate and consistent with market practice. No further documentation or contractual provisions are required to address FIRPTA compliance in the Transaction.

VII. State-Level FIRPTA-Like Provisions

In addition to the federal FIRPTA regime, certain states impose their own withholding requirements on transfers of real property (or interests therein) by nonresident sellers. Because the fourteen (14) properties held by the Target Entities are located in five Sun Belt states — Georgia, Texas, Florida, Tennessee, and North Carolina — we have surveyed the applicable state-level FIRPTA-analogous provisions in each jurisdiction to determine whether any state-level withholding obligation is triggered by the Transaction.

Georgia. Georgia imposes a withholding requirement on the sale or transfer of Georgia real property by nonresident sellers pursuant to O.C.G.A. § 48-7-128. Under this provision, the buyer or transferee of Georgia real property is generally required to withhold three percent (3%) of the purchase price (or the seller's gain, at the seller's election) if the seller is a "nonresident" of Georgia. However, this provision applies primarily to individual nonresidents and foreign entities. In this Transaction, the Georgia properties are held by certain Target Entities (Delaware LLCs), and the transaction is structured as an entity-level membership interest transfer — the Georgia real properties themselves are not being transferred at the asset level. Moreover, the transferor of the membership interests (GMP Fund III) is a domestic partnership. Under our analysis of the Georgia statute, the nonresident withholding provisions of O.C.G.A. § 48-7-128 are not triggered at the entity-interest-transfer level where the transferor is a domestic partnership and the underlying real property is not directly conveyed. We have referred this analysis to Talmadge Beaumont LLP (Catherine Beaumont), our Georgia local counsel, for confirmation, and expect a confirming letter prior to closing.

Texas. The State of Texas does not impose a state income tax. Accordingly, there is no state-level FIRPTA-like withholding requirement in Texas. No further analysis is required with respect to the Texas properties.

Florida. The State of Florida does not impose a state individual income tax and does not maintain a withholding obligation on real property transfers analogous to FIRPTA. Florida imposes a documentary stamp tax on conveyances of real property, but this is a transfer tax, not an income tax withholding obligation, and in any event applies to direct conveyances of real property rather than entity-level membership interest transfers. No FIRPTA-analogous state withholding issue arises with respect to the Florida properties.

Tennessee. Tennessee does not impose a state-level withholding obligation on real property transfers by nonresidents in a manner analogous to FIRPTA. Tennessee formerly imposed a limited income tax on certain investment income (the Hall Income Tax), but this tax was fully repealed effective January 1, 2021, and did not in any event apply to gains from the sale of real property or real property interests. We have confirmed this analysis with Ellsworth Ridley LLP (Diane Ellsworth), our Tennessee local counsel.

North Carolina. North Carolina imposes a withholding requirement on the sale or transfer of North Carolina real property by nonresidents pursuant to N.C.G.S. § 105-215.1. Under this provision, the buyer is generally required to withhold four percent (4%) of the purchase price if the seller is a nonresident individual, estate, or trust. However, the statute applies to "nonresident" individuals, estates, and trusts and does not extend to domestic partnerships transferring entity interests. In this Transaction, where the transferor (GMP Fund III) is a domestic partnership and the transaction is structured as an entity-level membership interest transfer rather than a direct conveyance of North Carolina real property, the withholding provisions of N.C.G.S. § 105-215.1 are not triggered. We have confirmed this analysis with Haversham Cole PLLC (Marshall Haversham), our North Carolina local counsel.

Conclusion. Based on our survey of applicable state-level provisions, no FIRPTA-analogous state withholding obligation applies to the Transaction in any of the five states where the Target Entities' properties are located. The entity-level transfer structure and GMP Fund III's domestic partnership status effectively eliminate any state-level withholding risk.

VIII. Coordination with Closing Deliverables

The following summarizes the logistical steps for the delivery and retention of the FIRPTA Certificate at closing:

Execution. The FIRPTA Certificate will be executed by Victor Lansdell, in his capacity as an authorized signatory of Greystone Meridian Capital LLC, as general partner of Greystone Meridian Partners Fund III, L.P. Victor Lansdell has been identified by Seller's counsel as the signatory who will execute closing deliverables on behalf of GMP Fund III. The signature will be notarized as required under the form of Exhibit O.

Delivery Timing. The executed FIRPTA Certificate will be delivered as a Seller closing deliverable at the closing of the Transaction. The anticipated closing date is June 6, 2024. The FIRPTA Certificate will be delivered to Fairwater's counsel (Calderwood & Harkness LLP) simultaneously with the execution and delivery of the other Seller closing documents, including the assignment of membership interest instruments for each of the fourteen (14) Target Entities.

Retention and Distribution. The original executed FIRPTA Certificate will be retained by Fairwater in its permanent closing binder for a minimum period of five (5) years following the closing date, consistent with the retention requirements of Treasury Regulation § 1.1445-2(b)(2)(iv). A conformed copy of the executed FIRPTA Certificate will be provided to Commonwealth National Title Insurance Company (Kenneth Stanhope, SVP, Title Officer) to satisfy the Schedule B-I requirement under each of the fourteen (14) title commitments. Delivery of the FIRPTA Certificate to Commonwealth Title will enable Commonwealth Title to delete the FIRPTA exception from the final owner's title insurance policies issued to Fairwater.

Seller's Counsel Confirmation. Blackridge Hayes LLP, counsel to GMP Fund III, has confirmed through Nathaniel Pryce (lead partner) and Thomas Keating (senior associate) that Seller will deliver the FIRPTA Certificate at closing in the form of PSA Exhibit O without objection or modification. No open issues remain with respect to the form or delivery of the FIRPTA Certificate.

IX. Conclusion and Recommendations

Based on the foregoing analysis, we offer the following conclusions and recommendations:

1. No FIRPTA withholding required. Greystone Meridian Partners Fund III, L.P. is a domestic limited partnership organized under the laws of the State of Delaware and is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. Fairwater Real Estate Investment Trust, as the transferee of the membership interests in the fourteen (14) Target Entities, has no obligation to deduct or withhold any portion of the aggregate $1,100,000,000 purchase price under Section 1445(a) of the Code.

2. No IRS forms required. Because no FIRPTA withholding is required, Fairwater is not required to file IRS Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) or IRS Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests) in connection with the Transaction. Fairwater is likewise not required to apply for a withholding certificate under Section 1445(b)(4) or Treasury Regulation § 1.1445-3.

3. FIRPTA Certificate recommended. As a belt-and-suspenders measure, and to satisfy the Schedule B-I requirement of Commonwealth National Title Insurance Company in each of the fourteen (14) title commitments, Seller should deliver at closing an executed non-foreign person affidavit (the "FIRPTA Certificate") in the form of PSA Exhibit O. The FIRPTA Certificate must certify that Greystone Meridian Partners Fund III, L.P. is not a foreign person within the meaning of Section 1445 of the Code, must include GMP Fund III's Employer Identification Number (83-1647205) and office address, and must be executed under penalty of perjury by an authorized signatory of Greystone Meridian Capital LLC as general partner of GMP Fund III. This document will be retained in the closing binder for a minimum of five (5) years.

4. No state-level withholding triggered. No FIRPTA-analogous state withholding obligation is triggered in any of the five states in which the Target Entities' properties are located (Georgia, Texas, Florida, Tennessee, or North Carolina). This conclusion is based on the entity-level transfer structure of the Transaction and on GMP Fund III's status as a domestic partnership. State-level local counsel confirmations have been obtained or are pending from Talmadge Beaumont LLP (Georgia), Ellsworth Ridley LLP (Tennessee), and Haversham Cole PLLC (North Carolina).

5. PSA provisions adequate. The Purchase and Sale Agreement dated February 28, 2024 includes both a Seller representation of non-foreign person status and the delivery of the FIRPTA Certificate as a condition to Buyer's obligation to close. The form of FIRPTA Certificate is attached as Exhibit O to the PSA and has been approved by Seller's counsel without objection. No further documentation or contractual provisions are required to address FIRPTA compliance in connection with the Transaction.

We are available to discuss this memorandum at your convenience. Please do not hesitate to contact Sylvia Hartwell at (212) 555-4720 or Rafael Dominguez at (212) 555-4835 with any questions.

DISTRIBUTION: Douglas Fairchild, Partner, Real Estate Practice Group — Calderwood & Harkness LLP Angela Fontaine, Partner, Real Estate Practice Group — Calderwood & Harkness LLP Grace Nakamura, Counsel, Real Estate Practice Group — Calderwood & Harkness LLP Rafael Dominguez, Associate, Real Estate Practice Group — Calderwood & Harkness LLP David Elgin Park, General Counsel — Fairwater Real Estate Investment Trust Camille Oduya, Deputy General Counsel — Fairwater Real Estate Investment Trust

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Calderwood & Harkness LLP — Matter No. 1036-00004 — Fairwater Real Estate Investment Trust

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 40th Floor New York, New York 10006
TO: Douglas Fairchild, Responsible Partner, Real Estate Practice Group Angela Fontaine, Billing Partner, Real Estate Practice Group
FROM: Sylvia Hartwell, Specialist Partner, Tax Practice Group Rafael Dominguez, Working Associate, Real Estate Practice Group
DATE: November 20, 2023
RE: FIRPTA Analysis — Acquisition of 14-Property Sun Belt Portfolio from Greystone Meridian Partners Fund III, L.P.
MATTER NO.: 1036-00004
CLIENT: Fairwater Real Estate Investment Trust
I. Executive Summary
The purpose of this memorandum is to analyze whether the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), codified at Sections 897 and 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), imposes any withholding obligation on Fairwater Real Estate Investment Trust ("Fairwater" or "Buyer") in connection with its proposed acquisition of one hundred percent (100%) of the membership interests in fourteen (14) property-owning Delaware limited liability companies (collectively, the "Target Entities") from Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or "Seller") for an aggregate purchase price of One Billion One Hundred Million Dollars ($1,100,000,000) (the "Transaction").
Conclusion. Based on our review of the relevant statutory and regulatory provisions, the organizational documents of GMP Fund III, and the factual record as currently understood, we conclude that GMP Fund III is a domestic limited partnership organized under the laws of the State of Delaware and is not a "foreign person" within the meaning of Section 1445 of the Code. Accordingly, FIRPTA withholding under Section 1445(a) is not required in connection with the Transaction. Fairwater has no obligation to deduct and withhold any portion of the purchase price, and Fairwater is not required to file IRS Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) or Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests) in connection with the closing.
Belt-and-Suspenders Recommendation. Notwithstanding the foregoing conclusion, we recommend — consistent with prevailing market practice in large-scale commercial real estate transactions — that Seller deliver at closing a non-foreign person affidavit (a "FIRPTA Certificate") conforming to the requirements of Treasury Regulation § 1.1445-2(b)(2). The form of such FIRPTA Certificate has been drafted and is included as Exhibit O to the Purchase and Sale Agreement (the "PSA"). This protective measure serves two important functions. First, it eliminates any residual risk of buyer liability under Section 1445(a) in the unlikely event that Seller's domestic status is later called into question or mischaracterized in any audit or examination. Second, it provides comfort to Commonwealth National Title Insurance Company ("Commonwealth Title"), acting as escrow agent and title insurer in the Transaction, which has indicated through Kenneth Stanhope, SVP, Title Officer, that delivery of a FIRPTA Certificate is a Schedule B-I requirement under each of the fourteen (14) title commitments issued in connection with the underlying real properties.
This memorandum sets forth the relevant statutory and regulatory framework, applies that framework to the facts of the Transaction, surveys applicable state-level FIRPTA-analogous provisions, and provides our specific recommendations regarding closing deliverables.
II. Transaction Overview
The following summarizes the material facts relevant to the FIRPTA analysis. This summary is based on our review of the PSA and related transaction documents, publicly available organizational filings, and information provided by both Buyer's and Seller's counsel.
Buyer. Fairwater Real Estate Investment Trust ("Fairwater" or "Buyer") is a Maryland real estate investment trust that has elected to be treated as a real estate investment trust for federal income tax purposes under Sections 856 through 860 of the Code. Fairwater is publicly traded on the New York Stock Exchange under the ticker symbol "FREIT." Fairwater's principal offices are located at 7200 Chesapeake Parkway, Suite 1100, Columbia, Maryland 21044. Fairwater's Employer Identification Number is 52-2198437. Fairwater's in-house legal team is led by David Elgin Park, General Counsel, and Camille Oduya, Deputy General Counsel. Calderwood & Harkness LLP serves as outside real estate and tax counsel to Fairwater in connection with the Transaction.
Seller. Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or "Seller") is a Delaware limited partnership formed under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq. GMP Fund III maintains its registered agent at 1209 Orange Street, Wilmington, Delaware 19801, through Pemberton Industries. GMP Fund III's principal office is located at 3300 Peachtree Road NE, Suite 2200, Atlanta, Georgia 30326. GMP Fund III's Employer Identification Number, as assigned by the Internal Revenue Service, is 83-1647205. GMP Fund III is a commingled real estate investment fund focused on the acquisition, management, and disposition of logistics and office properties in high-growth Sun Belt markets across the southeastern United States. GMP Fund III is represented in the Transaction by Blackridge Hayes LLP, with Nathaniel Pryce serving as lead partner and Thomas Keating serving as senior associate.
General Partner of Seller. The sole general partner of GMP Fund III is Greystone Meridian Capital LLC ("GMC"), a Delaware limited liability company. GMC's Employer Identification Number is 83-1520984. GMC is co-managed by its founding principals, Victor Lansdell and Elise Rathborne. GMC is authorized under the limited partnership agreement of GMP Fund III to execute documents and take actions on behalf of GMP Fund III in connection with the disposition of fund assets, including the execution of the PSA and all closing deliverables contemplated thereby.
Transaction Structure. The Transaction is structured as an entity-level acquisition. Fairwater will acquire one hundred percent (100%) of the outstanding membership interests in each of the fourteen (14) Target Entities. Each Target Entity is a single-purpose Delaware limited liability company formed for the sole purpose of holding, operating, and managing a single logistics or office property. The Target Entities and their underlying properties are located across five states in the Sun Belt region: Georgia, Texas, Florida, Tennessee, and North Carolina. By acquiring the membership interests in each Target Entity, rather than the underlying real properties themselves, Fairwater will obtain indirect ownership of the fourteen (14) properties while preserving the existing entity structures, financing arrangements, and, where applicable, property tax treatment at the local level.
Purchase Price. The aggregate purchase price for the Transaction is One Billion One Hundred Million Dollars ($1,100,000,000). The purchase price is comprised of approximately Six Hundred Twelve Million Dollars ($612,000,000) of assumed mortgage indebtedness encumbering the properties held by the Target Entities, and approximately Four Hundred Eighty-Eight Million Dollars ($488,000,000) in cash equity to be paid at closing. The assumed mortgage debt consists of individual non-recourse loans secured by first-priority deeds of trust or mortgages on each of the fourteen (14) underlying properties, held by various institutional lenders.
USRPI Status. The membership interests in each of the Target Entities constitute "United States real property interests" ("USRPIs") within the meaning of Section 897(c)(1) of the Code. This is because each Target Entity is the functional equivalent of a "United States real property holding corporation" — that is, its assets consist predominantly, if not exclusively, of interests in real property located within the United States. Specifically, each Target Entity's sole material asset is a fee simple or leasehold interest in a logistics or office property located in one of the five Sun Belt states. Because the fair market value of the U.S. real property interests held by each Target Entity equals or exceeds fifty percent (50%) of the fair market value of the sum of (i) such Target Entity's U.S. real property interests, (ii) its interests in real property located outside the United States, and (iii) its other trade or business assets, each Target Entity satisfies the USRPI holding corporation test under Section 897(c)(2) of the Code. Therefore, the membership interests in each Target Entity are themselves USRPIs.
As a result, the disposition of these membership interests by GMP Fund III triggers a FIRPTA analysis to determine whether Fairwater, as the transferee, has a withholding obligation under Section 1445(a) of the Code. The balance of this memorandum addresses that question.
III. FIRPTA Statutory Framework
FIRPTA was enacted as part of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2682, to address a perceived inequity in the pre-1980 treatment of foreign investors who realized gain on dispositions of U.S. real property. Prior to FIRPTA, gains from the sale of U.S. real property by foreign persons were generally not subject to U.S. federal income tax unless the gain was effectively connected with a U.S. trade or business. FIRPTA closed this gap by treating gains from the disposition of USRPIs by foreign persons as effectively connected income and by imposing a withholding mechanism on transferees to ensure collection.
FIRPTA is principally codified in two sections of the Code: Section 897, which establishes the substantive tax rule, and Section 1445, which establishes the withholding mechanism.
A. Section 897 — Taxation of Dispositions of USRPIs by Foreign Persons
Section 897(a) of the Code provides the foundational rule that gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account as if such gain or loss were effectively connected with the conduct of a trade or business within the United States. This provision overrides the general rule that capital gains of foreign persons are not subject to U.S. tax unless effectively connected with a U.S. trade or business, and ensures that foreign persons disposing of USRPIs are subject to U.S. federal income tax on any resulting gain at the regular graduated rates (for individuals) or the applicable corporate rate (for corporations).
Section 897(c)(1) defines the term "United States real property interest" broadly. A USRPI includes: (i) an interest in real property (including interests in mines, wells, or other natural deposits) located in the United States or the United States Virgin Islands; and (ii) any interest (other than an interest solely as a creditor) in any domestic corporation that is, or was at any time during the shorter of the period after June 18, 1980, during which the taxpayer held such interest, or the five-year period ending on the date of the disposition, a United States real property holding corporation. Section 897(c)(2) defines a "United States real property holding corporation" as any corporation if the fair market value of the United States real property interests held by such corporation equals or exceeds 50 percent of the fair market value of the sum of its United States real property interests, its interests in real property located outside the United States, and any other of its assets which are used or held for use in a trade or business.
Section 897(g) extends the FIRPTA regime to partnership interests. Specifically, under Section 897(g), under regulations prescribed by the Secretary, a nonresident alien individual or foreign corporation that disposes of an interest in a partnership, trust, or estate shall be treated under Section 897(a) to the extent that gain or loss attributable to the disposition is attributable to United States real property interests held by such partnership, trust, or estate. This look-through rule ensures that a foreign person cannot avoid FIRPTA by holding U.S. real property indirectly through a partnership or other pass-through entity.
It is important to note that Section 897 applies only to "nonresident alien individuals" and "foreign corporations." A domestic partnership, by contrast, is not itself a taxpayer for federal income tax purposes under the Code's partnership taxation regime (Subchapter K), and gains recognized at the partnership level flow through to the individual partners. The characterization of those gains as effectively connected income under Section 897 is determined at the partner level, not the partnership level.
B. Section 1445 — Withholding Obligation
Section 1445 establishes the enforcement mechanism for FIRPTA by imposing a withholding obligation on the transferee (buyer) of a USRPI. This withholding obligation is designed to ensure that the IRS collects tax on the gain realized by a foreign person on the disposition of a USRPI, even where the foreign person might otherwise leave the United States without filing a return or paying tax.
Section 1445(a) provides the general rule: "Except as otherwise provided in this section, in the case of any disposition of a United States real property interest (as defined in section 897(c)) by a foreign person, the transferee shall be required to deduct and withhold a tax equal to 15 percent of the amount realized on the disposition." The "amount realized" generally means the total purchase price, including the fair market value of any property received and any liabilities assumed by the transferee in connection with the acquisition. The withholding rate was increased from 10 percent to 15 percent by the Protecting Americans from Tax Hikes Act of 2015 (the "PATH Act"), effective February 17, 2016, for dispositions occurring on or after that date.
The obligation to withhold under Section 1445(a) is triggered only if the transferor is a "foreign person." The term "foreign person" is defined in Section 1445(f)(3) and Treasury Regulation § 1.1445-2(a) to mean any person other than a United States person within the meaning of Section 7701(a)(30) of the Code. Specifically, a "foreign person" includes: (i) a nonresident alien individual; (ii) a foreign corporation; (iii) a foreign partnership; (iv) a foreign trust; and (v) a foreign estate. Conversely, a domestic entity — including a domestic partnership — is a "United States person" and is not a "foreign person." Accordingly, if the transferor of a USRPI is a domestic partnership, Section 1445(a) withholding does not apply.
The consequences of a transferee's failure to withhold when required can be significant. Under Section 1445(a) and Treasury Regulation § 1.1445-1(e), the transferee may be held personally liable for the amount of tax required to be withheld, plus interest and applicable penalties. For a transaction of the magnitude at issue here — with a purchase price of $1,100,000,000 — the potential withholding liability under Section 1445(a), if triggered, would be $165,000,000 (15 percent of $1,100,000,000), making a careful analysis of the transferor's status essential.
C. Treasury Regulation § 1.1445-2(b)(2) — Non-Foreign Affidavit Exception
Even in circumstances where withholding is not technically required because the transferor is not a foreign person, Treasury Regulation § 1.1445-2(b)(2) provides a safe harbor mechanism that affords important protection to the transferee. Under this regulation, a transferee of a USRPI is not required to withhold under Section 1445(a) if the transferee receives, prior to or at the time of the transfer, a written certification from the transferor stating, under penalty of perjury, that the transferor is not a foreign person.
The regulation sets forth specific requirements for a qualifying non-foreign person certification. The certification must include: (i) the name of the transferor; (ii) the transferor's United States taxpayer identification number ("TIN") — in the case of an entity, its Employer Identification Number; (iii) the transferor's home address (in the case of an individual) or office address (in the case of an entity); and (iv) a statement that the transferor is not a foreign person. Treasury Regulation § 1.1445-2(b)(2)(i) further requires that the certification be signed under penalty of perjury. Where the transferor is a partnership, the certification must be signed by a general partner. Where the transferor is a limited liability company classified as a partnership for tax purposes, the certification must be signed by a manager or authorized member.
Critically, if the transferee receives a qualifying non-foreign person certification and does not have "actual knowledge" that the certification is false, the transferee is fully relieved of any obligation to withhold under Section 1445(a). The "actual knowledge" standard is a high bar — the transferee need not undertake any independent investigation into the truthfulness of the certification; constructive knowledge or reason to know is insufficient. See Treasury Regulation § 1.1445-2(b)(2)(i). This safe harbor thus provides a robust shield for a transferee that obtains a conforming FIRPTA Certificate.
The transferee must retain the non-foreign person certification for a period of five years following the date of the transfer and must make it available for inspection upon request by the Internal Revenue Service. See Treasury Regulation § 1.1445-2(b)(2)(iv).
IV. Analysis of Seller's Status
A. GMP Fund III Is a Domestic Partnership
The determinative question under Section 1445(a) is whether GMP Fund III, as the transferor of the membership interests in the Target Entities, is a "foreign person." For the reasons set forth below, the answer is no.
GMP Fund III's full legal name is Greystone Meridian Partners Fund III, L.P. It is a limited partnership formed and existing under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq. GMP Fund III's Certificate of Limited Partnership was duly filed with the Secretary of State of the State of Delaware, and GMP Fund III maintains its registered agent at 1209 Orange Street, Wilmington, Delaware 19801, through Pemberton Industries. GMP Fund III has been assigned Employer Identification Number 83-1647205 by the Internal Revenue Service, confirming its status as a recognized domestic entity for federal tax purposes.
Under Section 7701(a)(4) of the Code, the term "domestic," when applied to a partnership, means a partnership "created or organized in the United States or under the law of the United States or of any State." Treasury Regulation § 301.7701-5(a) confirms this definition, providing that "[a] business entity (including an entity that is disregarded as separate from its owner under § 301.7701-3) is domestic if it is created or organized in the United States or under the law of the United States or of any State." Because GMP Fund III was organized under the laws of the State of Delaware — one of the fifty states of the United States — GMP Fund III is a "domestic" partnership within the meaning of Section 7701(a)(4) and Treasury Regulation § 301.7701-5(a).
As discussed in Section III.B above, the term "foreign person" for purposes of Section 1445 does not include a domestic partnership. A domestic partnership is a "United States person" within the meaning of Section 7701(a)(30)(D) of the Code, which defines "United States person" to include "any domestic partnership." Because GMP Fund III is a domestic partnership and therefore a United States person, GMP Fund III is not a "foreign person" under Section 1445(f)(3). Accordingly, Section 1445(a) withholding is not applicable to the Transaction, and Fairwater has no obligation to deduct or withhold any portion of the purchase price.
We have confirmed GMP Fund III's domestic status through the following diligence steps:
(i) Review of GMP Fund III's Certificate of Limited Partnership, as filed with the Delaware Secretary of State and as reflected in the Delaware Division of Corporations' online records, confirming GMP Fund III's formation under Delaware law;
(ii) Review of GMP Fund III's Limited Partnership Agreement, dated as of March 15, 2018, which designates Delaware as the jurisdiction of organization and identifies Greystone Meridian Capital LLC as the sole general partner;
(iii) Confirmation that GMP Fund III holds a valid Employer Identification Number (83-1647205) issued by the Internal Revenue Service;
(iv) Review of GMP Fund III's most recently available IRS Form 1065 (U.S. Return of Partnership Income) for the taxable year ended December 31, 2022, which identifies GMP Fund III as a domestic partnership; and
(v) Representations made by Seller's counsel, Blackridge Hayes LLP (Nathaniel Pryce), confirming GMP Fund III's status as a domestic limited partnership organized under the laws of Delaware.
Based on the foregoing, we are satisfied that GMP Fund III is a domestic partnership and not a "foreign person" for purposes of Section 1445 of the Code.
B. General Partner Confirmation
As noted above, the sole general partner of GMP Fund III is Greystone Meridian Capital LLC ("GMC"), a Delaware limited liability company with Employer Identification Number 83-1520984. GMC was formed under the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., and is itself a domestic entity organized under the laws of the State of Delaware. GMC's managing members and co-founders are Victor Lansdell and Elise Rathborne, each of whom we understand to be United States citizens and residents based on information provided by Seller's counsel.
Although the FIRPTA withholding analysis under Section 1445(a) turns on the entity-level status of the transferor (GMP Fund III) rather than on the citizenship or residency of the general partner's individual members, the domestic status of GMC provides an additional layer of factual comfort. GMC will be the entity executing the FIRPTA Certificate on behalf of GMP Fund III, and its own domestic status ensures that the signing entity is itself a United States person.
C. Look-Through Issues — Not Applicable
A question that commonly arises in FIRPTA analyses involving partnership transferors is whether the buyer must "look through" the domestic partnership to its underlying partners — and, if any of those partners are foreign persons, whether a withholding obligation arises at the buyer level. In this case, the answer is clearly no, for the following reasons.
Section 1446 Does Not Create a Buyer Withholding Obligation. Section 1446 of the Code imposes a withholding obligation on a partnership that has effectively connected taxable income ("ECTI") allocable to foreign partners. Specifically, Section 1446(a) provides that, if a partnership has ECTI for any taxable year and any portion of such income is allocable to a foreign partner, the partnership shall pay a withholding tax on behalf of such foreign partner. However, Section 1446 imposes this obligation on the partnership itself (in this case, GMP Fund III) acting as a withholding agent with respect to its own partners — it does not impose any withholding obligation on a third-party transferee such as Fairwater. The Section 1446 analysis is wholly separate from, and does not affect, the Section 1445 analysis applicable to Fairwater.
The Transferor, Not Its Partners, Determines Section 1445 Withholding. Under Section 1445(a), the withholding obligation arises only if the "transferor" — the person disposing of the USRPI — is a foreign person. In this Transaction, the transferor of the membership interests in the Target Entities is GMP Fund III. GMP Fund III is a domestic partnership. The analysis ends there. The Code does not require a transferee to look through a domestic partnership transferor to the individual partners of that partnership to determine whether any of those partners are themselves foreign persons. This is consistent with the fundamental principle of entity-level classification under Section 7701 — a partnership's domestic or foreign status is determined by reference to the jurisdiction of its organization, not the nationality or residency of its partners.
Foreign Partners in GMP Fund III — Irrelevant to Fairwater's Obligations. Even if GMP Fund III's limited partner base includes one or more foreign limited partners — a fact we have neither confirmed nor investigated, as it is not relevant to this analysis — this would not convert GMP Fund III into a "foreign person" for Section 1445 purposes. GMP Fund III's own obligation, if any, to withhold under Section 1446 on ECTI allocable to its foreign partners (including any ECTI arising from the gain on this Transaction) is an internal obligation of GMP Fund III and has no bearing whatsoever on Fairwater's position as a transferee under Section 1445. Fairwater need not inquire into, and bears no responsibility for, GMP Fund III's compliance with Section 1446.
We note for completeness that Section 1446(f), enacted by the Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, imposes a withholding obligation on a transferee that acquires a partnership interest from a foreign transferor where any portion of the gain on the disposition would be treated as effectively connected income under Section 864(c)(8). However, Section 1446(f) applies to the acquisition of partnership interests, and the transferor must be a foreign person. In this Transaction, Fairwater is acquiring membership interests in the Target Entities (which are LLCs classified as disregarded entities or partnerships, not interests in GMP Fund III itself), and the transferor is GMP Fund III, a domestic partnership. Section 1446(f) is therefore not applicable.
V. FIRPTA Withholding Certificate — Not Required
In certain transactions involving foreign transferors, a transferee may apply to the Internal Revenue Service for a "withholding certificate" under Section 1445(b)(4) and Treasury Regulation § 1.1445-3 to reduce the amount of withholding required under Section 1445(a). A withholding certificate may be issued by the IRS where, for example, the transferor's maximum tax liability on the disposition is less than 15 percent of the amount realized, or where the transferor enters into an agreement with the IRS to pay the applicable tax in installments.
Because GMP Fund III is not a foreign person, Fairwater has no withholding obligation under Section 1445(a) in the first instance. Accordingly, there is no need for Fairwater to apply for a withholding certificate from the IRS under Section 1445(b)(4) or Treasury Regulation § 1.1445-3. This conclusion avoids the delay and administrative burden that a withholding certificate application would impose — the IRS generally takes 90 days to process such applications, which would be incompatible with the Transaction's closing timeline.
Furthermore, no IRS Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) or Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests) is required to be filed by Fairwater in connection with the Transaction. Form 8288 is required to be filed by a transferee only when withholding is actually required under Section 1445(a) — i.e., when the transferor is a foreign person. Since GMP Fund III is a domestic partnership and no withholding is required, no Form 8288 or 8288-A filing obligation arises.
VI. Belt-and-Suspenders: Non-Foreign Person Affidavit (FIRPTA Certificate)
A. Rationale. Although our analysis confirms that FIRPTA withholding is not legally required in connection with this Transaction, we nevertheless strongly recommend, as a matter of best practice and risk management, that Seller deliver a non-foreign person affidavit (the "FIRPTA Certificate") at closing.
This recommendation is grounded in several considerations. First, the delivery and retention of a conforming FIRPTA Certificate provides Fairwater with a documentary safe harbor under Treasury Regulation § 1.1445-2(b)(2). In the unlikely event that the IRS were to challenge or question Seller's domestic status in connection with an audit or examination — whether due to administrative error, a successor fund reorganization, or any other unforeseen circumstance — the FIRPTA Certificate would provide Fairwater with conclusive evidence that it acted in reliance on Seller's sworn certification and therefore has no personal liability for any withholding that might otherwise have been required. Under the Treasury Regulations, a transferee that holds a conforming non-foreign person certification and has no "actual knowledge" that the certification is false is fully relieved of withholding liability, even if the certification later proves to have been incorrect.
Second, the delivery of a FIRPTA Certificate is a standard market requirement in large commercial real estate transactions. Title insurance companies uniformly require the delivery of a FIRPTA Certificate (or evidence that withholding has been properly applied) as a condition to the issuance of an owner's title insurance policy. In this Transaction, Commonwealth National Title Insurance Company, through Kenneth Stanhope, SVP, Title Officer, has indicated that the delivery of a FIRPTA Certificate from GMP Fund III is a Schedule B-I requirement in each of the fourteen (14) title commitments issued in connection with the underlying properties held by the Target Entities. Failure to deliver the FIRPTA Certificate could result in the inclusion of a FIRPTA exception on the title policies, which would be commercially unacceptable to Fairwater.
Third, the cost and burden of delivering a FIRPTA Certificate is minimal — it requires only the execution of a one-page affidavit under penalty of perjury — while the protection it affords is substantial. This is a classic "belt-and-suspenders" measure that provides meaningful risk mitigation at negligible cost.
B. Form of FIRPTA Certificate
We have prepared a form of non-foreign person affidavit that conforms to the requirements of Treasury Regulation § 1.1445-2(b)(2). This form has been included as Exhibit O to the PSA. The form FIRPTA Certificate has been circulated to Seller's counsel, Blackridge Hayes LLP, and has been approved without revision.
The FIRPTA Certificate will be executed by an authorized officer or representative of Greystone Meridian Capital LLC, in its capacity as general partner of GMP Fund III. As noted above, Treasury Regulation § 1.1445-2(b)(2) permits a general partner to execute the non-foreign person certification on behalf of a partnership transferor.
The FIRPTA Certificate includes the following required content:
(i) Full legal name of transferor: Greystone Meridian Partners Fund III, L.P.
(ii) Employer Identification Number: 83-1647205.
(iii) Office address: 3300 Peachtree Road NE, Suite 2200, Atlanta, Georgia 30326.
(iv) Non-foreign status statement: A statement that Greystone Meridian Partners Fund III, L.P. is not a foreign person, foreign corporation, foreign partnership, foreign trust, or foreign estate, as those terms are defined in the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
(v) Disclosure acknowledgment: An acknowledgment that the FIRPTA Certificate may be disclosed to the Internal Revenue Service by the transferee, and that any false statement contained therein could be punished by fine, imprisonment, or both.
(vi) Penalty of perjury signature: The signature of an authorized signatory of Greystone Meridian Capital LLC, as general partner of Greystone Meridian Partners Fund III, L.P., executed under penalty of perjury under the laws of the United States of America.
The FIRPTA Certificate is drafted to be a stand-alone document capable of being recorded in the real property records of the applicable county, although recording is not required under the Treasury Regulations and is not anticipated in this Transaction.
C. PSA Provisions
The PSA, which bears an effective date of February 28, 2024, contains provisions addressing FIRPTA compliance as follows:
(i) Closing Condition. The delivery of the executed FIRPTA Certificate in the form of PSA Exhibit O is a condition to Buyer's obligation to close the Transaction. Specifically, the PSA provides that Buyer's obligation to consummate the Transaction is conditioned upon, among other things, Seller's delivery at closing of a duly executed non-foreign person affidavit in the form attached as Exhibit O to the PSA. Failure of Seller to deliver the FIRPTA Certificate at closing would constitute a failure of a Buyer closing condition and would entitle Fairwater to decline to close without liability.
(ii) Seller Representation. The PSA includes a representation by Seller, in the article addressing Seller's Representations and Warranties, that Seller is not a "foreign person" within the meaning of Section 1445 of the Code, and that Seller is a domestic partnership organized under the laws of the State of Delaware.
(iii) Exhibit O. The PSA includes as Exhibit O the agreed form of the FIRPTA Certificate, which conforms to the requirements described in Section VI.B above.
These PSA provisions are adequate and consistent with market practice. No further documentation or contractual provisions are required to address FIRPTA compliance in the Transaction.
VII. State-Level FIRPTA-Like Provisions
In addition to the federal FIRPTA regime, certain states impose their own withholding requirements on transfers of real property (or interests therein) by nonresident sellers. Because the fourteen (14) properties held by the Target Entities are located in five Sun Belt states — Georgia, Texas, Florida, Tennessee, and North Carolina — we have surveyed the applicable state-level FIRPTA-analogous provisions in each jurisdiction to determine whether any state-level withholding obligation is triggered by the Transaction.
Georgia. Georgia imposes a withholding requirement on the sale or transfer of Georgia real property by nonresident sellers pursuant to O.C.G.A. § 48-7-128. Under this provision, the buyer or transferee of Georgia real property is generally required to withhold three percent (3%) of the purchase price (or the seller's gain, at the seller's election) if the seller is a "nonresident" of Georgia. However, this provision applies primarily to individual nonresidents and foreign entities. In this Transaction, the Georgia properties are held by certain Target Entities (Delaware LLCs), and the transaction is structured as an entity-level membership interest transfer — the Georgia real properties themselves are not being transferred at the asset level. Moreover, the transferor of the membership interests (GMP Fund III) is a domestic partnership. Under our analysis of the Georgia statute, the nonresident withholding provisions of O.C.G.A. § 48-7-128 are not triggered at the entity-interest-transfer level where the transferor is a domestic partnership and the underlying real property is not directly conveyed. We have referred this analysis to Talmadge Beaumont LLP (Catherine Beaumont), our Georgia local counsel, for confirmation, and expect a confirming letter prior to closing.
Texas. The State of Texas does not impose a state income tax. Accordingly, there is no state-level FIRPTA-like withholding requirement in Texas. No further analysis is required with respect to the Texas properties.
Florida. The State of Florida does not impose a state individual income tax and does not maintain a withholding obligation on real property transfers analogous to FIRPTA. Florida imposes a documentary stamp tax on conveyances of real property, but this is a transfer tax, not an income tax withholding obligation, and in any event applies to direct conveyances of real property rather than entity-level membership interest transfers. No FIRPTA-analogous state withholding issue arises with respect to the Florida properties.
Tennessee. Tennessee does not impose a state-level withholding obligation on real property transfers by nonresidents in a manner analogous to FIRPTA. Tennessee formerly imposed a limited income tax on certain investment income (the Hall Income Tax), but this tax was fully repealed effective January 1, 2021, and did not in any event apply to gains from the sale of real property or real property interests. We have confirmed this analysis with Ellsworth Ridley LLP (Diane Ellsworth), our Tennessee local counsel.
North Carolina. North Carolina imposes a withholding requirement on the sale or transfer of North Carolina real property by nonresidents pursuant to N.C.G.S. § 105-215.1. Under this provision, the buyer is generally required to withhold four percent (4%) of the purchase price if the seller is a nonresident individual, estate, or trust. However, the statute applies to "nonresident" individuals, estates, and trusts and does not extend to domestic partnerships transferring entity interests. In this Transaction, where the transferor (GMP Fund III) is a domestic partnership and the transaction is structured as an entity-level membership interest transfer rather than a direct conveyance of North Carolina real property, the withholding provisions of N.C.G.S. § 105-215.1 are not triggered. We have confirmed this analysis with Haversham Cole PLLC (Marshall Haversham), our North Carolina local counsel.
Conclusion. Based on our survey of applicable state-level provisions, no FIRPTA-analogous state withholding obligation applies to the Transaction in any of the five states where the Target Entities' properties are located. The entity-level transfer structure and GMP Fund III's domestic partnership status effectively eliminate any state-level withholding risk.
VIII. Coordination with Closing Deliverables
The following summarizes the logistical steps for the delivery and retention of the FIRPTA Certificate at closing:
Execution. The FIRPTA Certificate will be executed by Victor Lansdell, in his capacity as an authorized signatory of Greystone Meridian Capital LLC, as general partner of Greystone Meridian Partners Fund III, L.P. Victor Lansdell has been identified by Seller's counsel as the signatory who will execute closing deliverables on behalf of GMP Fund III. The signature will be notarized as required under the form of Exhibit O.
Delivery Timing. The executed FIRPTA Certificate will be delivered as a Seller closing deliverable at the closing of the Transaction. The anticipated closing date is June 6, 2024. The FIRPTA Certificate will be delivered to Fairwater's counsel (Calderwood & Harkness LLP) simultaneously with the execution and delivery of the other Seller closing documents, including the assignment of membership interest instruments for each of the fourteen (14) Target Entities.
Retention and Distribution. The original executed FIRPTA Certificate will be retained by Fairwater in its permanent closing binder for a minimum period of five (5) years following the closing date, consistent with the retention requirements of Treasury Regulation § 1.1445-2(b)(2)(iv). A conformed copy of the executed FIRPTA Certificate will be provided to Commonwealth National Title Insurance Company (Kenneth Stanhope, SVP, Title Officer) to satisfy the Schedule B-I requirement under each of the fourteen (14) title commitments. Delivery of the FIRPTA Certificate to Commonwealth Title will enable Commonwealth Title to delete the FIRPTA exception from the final owner's title insurance policies issued to Fairwater.
Seller's Counsel Confirmation. Blackridge Hayes LLP, counsel to GMP Fund III, has confirmed through Nathaniel Pryce (lead partner) and Thomas Keating (senior associate) that Seller will deliver the FIRPTA Certificate at closing in the form of PSA Exhibit O without objection or modification. No open issues remain with respect to the form or delivery of the FIRPTA Certificate.
IX. Conclusion and Recommendations
Based on the foregoing analysis, we offer the following conclusions and recommendations:
1. No FIRPTA withholding required. Greystone Meridian Partners Fund III, L.P. is a domestic limited partnership organized under the laws of the State of Delaware and is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. Fairwater Real Estate Investment Trust, as the transferee of the membership interests in the fourteen (14) Target Entities, has no obligation to deduct or withhold any portion of the aggregate $1,100,000,000 purchase price under Section 1445(a) of the Code.
2. No IRS forms required. Because no FIRPTA withholding is required, Fairwater is not required to file IRS Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) or IRS Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests) in connection with the Transaction. Fairwater is likewise not required to apply for a withholding certificate under Section 1445(b)(4) or Treasury Regulation § 1.1445-3.
3. FIRPTA Certificate recommended. As a belt-and-suspenders measure, and to satisfy the Schedule B-I requirement of Commonwealth National Title Insurance Company in each of the fourteen (14) title commitments, Seller should deliver at closing an executed non-foreign person affidavit (the "FIRPTA Certificate") in the form of PSA Exhibit O. The FIRPTA Certificate must certify that Greystone Meridian Partners Fund III, L.P. is not a foreign person within the meaning of Section 1445 of the Code, must include GMP Fund III's Employer Identification Number (83-1647205) and office address, and must be executed under penalty of perjury by an authorized signatory of Greystone Meridian Capital LLC as general partner of GMP Fund III. This document will be retained in the closing binder for a minimum of five (5) years.
4. No state-level withholding triggered. No FIRPTA-analogous state withholding obligation is triggered in any of the five states in which the Target Entities' properties are located (Georgia, Texas, Florida, Tennessee, or North Carolina). This conclusion is based on the entity-level transfer structure of the Transaction and on GMP Fund III's status as a domestic partnership. State-level local counsel confirmations have been obtained or are pending from Talmadge Beaumont LLP (Georgia), Ellsworth Ridley LLP (Tennessee), and Haversham Cole PLLC (North Carolina).
5. PSA provisions adequate. The Purchase and Sale Agreement dated February 28, 2024 includes both a Seller representation of non-foreign person status and the delivery of the FIRPTA Certificate as a condition to Buyer's obligation to close. The form of FIRPTA Certificate is attached as Exhibit O to the PSA and has been approved by Seller's counsel without objection. No further documentation or contractual provisions are required to address FIRPTA compliance in connection with the Transaction.
We are available to discuss this memorandum at your convenience. Please do not hesitate to contact Sylvia Hartwell at (212) 555-4720 or Rafael Dominguez at (212) 555-4835 with any questions.
DISTRIBUTION: Douglas Fairchild, Partner, Real Estate Practice Group — Calderwood & Harkness LLP Angela Fontaine, Partner, Real Estate Practice Group — Calderwood & Harkness LLP Grace Nakamura, Counsel, Real Estate Practice Group — Calderwood & Harkness LLP Rafael Dominguez, Associate, Real Estate Practice Group — Calderwood & Harkness LLP David Elgin Park, General Counsel — Fairwater Real Estate Investment Trust Camille Oduya, Deputy General Counsel — Fairwater Real Estate Investment Trust
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Calderwood & Harkness LLP — Matter No. 1036-00004 — Fairwater Real Estate Investment Trust

MEMORANDUM

MATTER NO.: 1036-00004

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