PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Douglas Fairchild, Responsible Partner, Real Estate, Calderwood & Harkness LLP
CC: Angela Fontaine, Billing Partner, Real Estate, Calderwood & Harkness LLP; Grace Nakamura, Lead Associate, Real Estate, Calderwood & Harkness LLP; Rafael Dominguez, Working Associate, Real Estate, Calderwood & Harkness LLP
FROM: Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP
DATE: November 20, 2023 (updated March 12, 2024, to reflect final PSA terms)
RE: Transfer Tax Analysis — Controlling-Interest Transfer Taxes in Five States (Georgia, Texas, Florida, Tennessee, North Carolina) — Fairwater Real Estate Investment Trust Acquisition of 14-Property Sun Belt Logistics & Office Portfolio from Greystone Meridian Partners Fund III, L.P.
MATTER NO.: 1036-00004
Right-click to update Table of Contents
I. Executive Summary
Fairwater Real Estate Investment Trust ("Fairwater" or "FREIT"), a Maryland real estate investment trust listed on the New York Stock Exchange (NYSE: FREIT), is acquiring one hundred percent (100%) of the membership interests in fourteen (14) single-purpose Delaware limited liability companies (collectively, the "Target Entities") from Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or "Seller"), a Delaware limited partnership, for an aggregate purchase price of One Billion One Hundred Million Dollars ($1,100,000,000) (the "Purchase Price"). The transaction is being consummated pursuant to the Purchase and Sale Agreement dated February 28, 2024 (as amended, the "PSA"), and closing is scheduled for June 6, 2024.
The transaction is structured as an entity-level acquisition — that is, Fairwater is acquiring the membership interests in the Target Entities rather than acquiring direct fee simple title to the underlying real property through recorded deeds. Each Target Entity holds a single real property asset, and the real property will continue to be owned by the same Target Entity after the transfer of membership interests is completed. No deed or other instrument of real property conveyance will be recorded in any jurisdiction in connection with the closing.
This memorandum has been prepared at the request of the Real Estate group to analyze the transfer tax implications of this entity-level transaction structure across the five states in which the fourteen properties are located: Georgia, Texas, Florida, Tennessee, and North Carolina. Several of these states impose transfer taxes on transfers of "controlling interests" in entities that own real property situated within the state, even where no deed is recorded and the real property remains in the name of the same legal entity. These controlling-interest transfer tax statutes are designed to capture entity-level transactions that effectively transfer economic ownership of real property without a traditional conveyance, and they present a material cost item in connection with this transaction.
The total estimated transfer tax exposure across all five jurisdictions is approximately $3,850,000, broken down as follows:
• Georgia: Approximately $1,250,000 (four properties — three logistics facilities and one office tower)
• Texas: $0 (three properties — three logistics facilities; Texas does not impose a state-level real estate transfer tax or controlling-interest transfer tax)
• Florida: Approximately $1,680,000 (three properties — two logistics facilities and one office building; documentary stamp tax applies to deemed consideration including assumed indebtedness)
• Tennessee: Approximately $740,000 (three properties — two logistics facilities and one office park)
• North Carolina: Approximately $180,000 (one property — one office complex)
Pursuant to Section 10.4(b) of the PSA (dated February 28, 2024), all transfer taxes, documentary stamp taxes, excise taxes, and similar charges imposed in connection with the transactions contemplated by the PSA are to be allocated equally between Buyer and Seller on a fifty-fifty (50/50) basis. Based on the aggregate estimated exposure of $3,850,000, Buyer's share of transfer taxes is estimated at $1,925,000, and Seller's share is estimated at $1,925,000. These amounts will be reflected on the closing settlement statements for both parties.
Local counsel in each jurisdiction has been engaged to confirm our analysis, prepare the requisite transfer tax declarations and filings, and coordinate with the applicable state and county tax authorities in connection with the closing. The local counsel engagements are as follows:
• Georgia: Talmadge Beaumont LLP (Catherine Beaumont, Partner), Atlanta, Georgia
• Texas: Breckenridge Osgood LLP (James Breckenridge, Partner), Houston, Texas
• Florida: Palmetto Strauss PA (Roberto Strauss, Partner), Miami, Florida
• Tennessee: Ellsworth Ridley LLP (Diane Ellsworth, Partner), Nashville, Tennessee
• North Carolina: Haversham Cole PLLC (Marshall Haversham, Partner), Charlotte, North Carolina
The balance of this memorandum sets forth our detailed analysis of the applicable transfer tax statutes in each of the five states, the estimated tax liability attributable to each property, the filing requirements, and our recommendations for coordinating the payment and documentation of transfer taxes in connection with the scheduled closing.
II. Transaction Structure and Transfer Tax Framework
A. Entity-Level Purchase Structure
The acquisition is structured as a purchase of membership interests rather than a purchase of real property. Specifically, Fairwater is acquiring one hundred percent (100%) of the issued and outstanding membership interests in each of the fourteen Target Entities directly from GMP Fund III, which is the sole member of each Target Entity. Each Target Entity is a Delaware limited liability company that was formed by GMP Fund III (or its affiliates) as a single-purpose, bankruptcy-remote entity for the purpose of holding a single real property asset and the related leases, contracts, and ancillary personal property.
Following the transfer of membership interests, each Target Entity will continue to hold legal title to its respective real property. No deed or other instrument of real property conveyance will be recorded with any county recorder, register of deeds, or clerk of the superior court in any of the five states. The transfer is documented solely through the assignment and assumption of membership interests, which is evidenced by an Assignment and Assumption of Membership Interests for each Target Entity, executed by GMP Fund III (as assignor) and Fairwater (as assignee), together with the amendment of each Target Entity's operating agreement to reflect Fairwater as the sole member.
Notwithstanding the absence of a recorded deed, the transfer of one hundred percent of the membership interests in each Target Entity constitutes a change of ownership and control for purposes of (i) state and local transfer tax statutes (as discussed in detail in Section III below), (ii) the existing mortgage loan agreements, and (iii) certain tenant estoppel and consent requirements.
With respect to the existing mortgage indebtedness, the transfer of membership interests constitutes a "change of control" or "transfer" event under each of the existing mortgage loan agreements, which require the prior written consent of the applicable lender. The three existing lenders and the aggregate outstanding principal balances of their respective loans are as follows:
• Pinnacle Federal Bank, N.A.: $421,600,000 (aggregate outstanding principal across multiple loans secured by multiple properties)
• Veltrano Capital Lending Corp.: $142,300,000 (aggregate outstanding principal across multiple loans secured by multiple properties)
• Sycamore Life Insurance Company: $48,100,000 (aggregate outstanding principal secured by a single property, with a participation in one additional property)
The aggregate assumed indebtedness across all fourteen properties totals approximately $612,000,000. Lender consent applications have been submitted to each of the three lenders, and consent is expected to be received on or before the lender consent deadline of May 24, 2024. The assumed indebtedness is relevant to the transfer tax analysis in certain states, particularly Florida, where documentary stamp tax is assessed on total consideration, which includes assumed mortgage debt.
B. Controlling-Interest Transfer Tax Concept
Multiple states across the country have enacted "controlling-interest transfer" tax statutes to address the perceived revenue leakage that occurs when real property is effectively transferred through entity-level transactions that do not involve the recording of a traditional deed. These statutes are designed to ensure that transfers of economic ownership of real property are subject to transfer taxation regardless of the transactional mechanism employed, thereby placing entity-level transfers on equal footing with direct conveyances for transfer tax purposes.
The general framework of a controlling-interest transfer tax statute operates as follows:
(a) Triggering Event. The statute is triggered when a "controlling interest" in an entity that owns real property located within the state is transferred, whether by sale, assignment, merger, consolidation, or other transaction or series of related transactions.
(b) Controlling-Interest Threshold. The threshold for a "controlling interest" varies by state but is typically defined as more than fifty percent (50%) of the total ownership interests in the entity. Some states use different thresholds or define "controlling interest" based on voting power, capital interests, profit-sharing interests, or beneficial interests.
(c) Tax Base. The tax base is typically the fair market value of the real property owned by the entity, the consideration paid for the controlling interest (allocated to the real property), or the "total consideration" for the transfer (which may include assumed indebtedness). The method for determining the tax base varies significantly by state and is a critical factor in calculating the tax liability.
(d) Tax Rate. The applicable tax rate is generally the same rate that would apply to a direct conveyance of real property by recorded deed. Some states, however, apply a different rate or different calculation methodology for controlling-interest transfers.
In this transaction, Fairwater is acquiring one hundred percent (100%) of the membership interests in each of the fourteen Target Entities. Because the acquisition involves the transfer of all — not merely a majority — of the ownership interests, the transfer clearly exceeds the controlling-interest threshold in every state that imposes such a tax. Accordingly, the critical analytical questions for each state are: (1) does the state impose a controlling-interest transfer tax; (2) what is the applicable tax base (fair market value, consideration, or consideration including assumed debt); (3) what is the applicable tax rate; and (4) what are the filing and payment requirements.
C. Purchase Price and Allocation
The aggregate Purchase Price for the fourteen Target Entities is $1,100,000,000. This amount represents the total equity consideration payable by Fairwater to GMP Fund III, exclusive of the assumed indebtedness of approximately $612,000,000 (which Fairwater is assuming in connection with the acquisition). The total enterprise value of the portfolio, inclusive of assumed debt, is therefore approximately $1,712,000,000.
The allocation of the Purchase Price among the fourteen properties has been determined in accordance with PSA Exhibit K, which sets forth the agreed-upon allocation based on appraised values as determined by Stonebridge Valuation Advisors, LLC, an independent valuation firm engaged jointly by Buyer and Seller for this purpose. The Exhibit K allocation governs the determination of the tax base for transfer tax purposes in each jurisdiction, as each state's transfer tax is calculated based on the consideration attributable to the real property located within that state.
The following table identifies the fourteen Target Entities and their respective properties, organized by state:
Georgia (4 properties):
Texas (3 properties):
Florida (3 properties):
Tennessee (3 properties):
North Carolina (1 property):
The specific allocated purchase price for each property, as set forth in PSA Exhibit K, is not reproduced in the body of this memorandum but is reflected in the property-level calculations in Appendix A. For purposes of the state-by-state analysis in Section III below, we reference the aggregate allocated purchase price for each state grouping.
III. State-by-State Analysis
A. Georgia.
1. Applicable Statute. Georgia imposes a real estate transfer tax under the Georgia Revenue Code, O.C.G.A. § 48-6-1 et seq. The transfer tax applies broadly to transfers of real property located within the State of Georgia, including transfers accomplished through the transfer of controlling interests in entities that own Georgia real property.
Under the Georgia controlling-interest transfer provisions, a transfer of a "controlling interest" in an entity that holds an interest in real property located in Georgia is treated as a transfer of the real property for purposes of the real estate transfer tax. A "controlling interest" is defined as more than fifty percent (50%) of the total interest in the entity. The statute encompasses transfers of interests in partnerships, limited liability companies, corporations, trusts, and other entities that directly or indirectly own Georgia real property.
In this transaction, Fairwater is acquiring one hundred percent (100%) of the membership interests in each of the four Georgia Target Entities — GMP Fairfield I LLC, GMP Fairfield II LLC, GMP Buckhead LLC, and GMP Peachtree LLC — from GMP Fund III. Because the acquisition of 100% of the membership interests clearly exceeds the 50% controlling-interest threshold, the transfer triggers the Georgia real estate transfer tax with respect to each of the four Georgia properties.
It is worth noting that Georgia has applied its controlling-interest transfer provisions consistently in administrative rulings and informal guidance, and there is no ambiguity as to the applicability of the tax in a transaction involving the transfer of 100% of the membership interests in a single-member LLC that owns a single Georgia property. The Georgia Department of Revenue has historically enforced these provisions in connection with portfolio acquisitions of this nature.
2. Tax Rate and Base. The Georgia real estate transfer tax is imposed at a rate of $1.00 per $1,000 of value, which is equivalent to a rate of 0.1% (ten basis points). The tax base is the fair market value of the real property being transferred. In the context of a controlling-interest transfer, the tax base is the consideration attributable to the real property, which in this transaction is the allocated purchase price for each Georgia property as set forth in PSA Exhibit K.
Georgia also imposes an intangible recording tax at a rate of $1.50 per $500 (equivalent to 0.3%) on new mortgages, deeds to secure debt, and similar security instruments recorded in the state. However, because the existing mortgage loans secured by the Georgia properties are being assumed by Fairwater (through the entity-level transfer) rather than refinanced or replaced, and because the existing deeds to secure debt are already of record and will not be re-recorded, no new intangible recording tax should be triggered in connection with this transaction. This is a significant advantage of the entity-level structure, as discussed further in Section V below.
It should be noted that if new financing were obtained in connection with this acquisition — or if any of the existing lenders required the execution and recording of new deeds to secure debt as a condition to their consent — the intangible recording tax would apply to the full principal amount of the new security instrument. Based on the aggregate debt allocated to the Georgia properties, the intangible recording tax savings resulting from the assumption of existing debt is material and is quantified in Section V.
3. Properties and Estimated Tax. The four Georgia properties and the estimated transfer tax for each are as follows:
The aggregate allocated purchase price for the four Georgia properties (as determined by the Exhibit K allocation) is approximately $1,250,000,000 of value (reflecting the proportional allocation of the total Purchase Price and the appraised values established by Stonebridge Valuation Advisors, LLC). At the Georgia transfer tax rate of 0.1%, the estimated Georgia real estate transfer tax on the four Georgia properties is approximately $1,250,000 in the aggregate.
The exact calculation depends on the final appraised-value allocation per Exhibit K, which has been confirmed based on the Stonebridge Valuation Advisors appraisals. Local counsel Talmadge Beaumont LLP (Catherine Beaumont, Partner) is preparing the transfer tax declarations for each of the four Georgia properties and will confirm the final amounts prior to the closing date.
The properties span two Georgia counties — Fulton County (which encompasses both the Fairburn and Atlanta addresses) and Gwinnett County (which encompasses the Peachtree Corners address). Separate transfer tax declarations will be filed in each county.
4. Filing Requirements. Georgia transfer tax declarations must be filed with the clerk of the superior court in each county where the real property is located. For the four Georgia properties, the filing obligations are as follows:
(a) Fulton County — GMP Fairfield I LLC (Fairfield Logistics Center I, Fairburn), GMP Fairfield II LLC (Fairfield Logistics Center II, Fairburn), and GMP Buckhead LLC (Buckhead Place Office Tower, Atlanta): Transfer tax declarations and payment to be filed with the Fulton County Clerk of Superior Court.
(b) Gwinnett County — GMP Peachtree LLC (Peachtree Corners Logistics Center, Peachtree Corners): Transfer tax declaration and payment to be filed with the Gwinnett County Clerk of Superior Court.
The transfer tax is due at or before closing. Talmadge Beaumont LLP is responsible for preparing and filing the Georgia controlling-interest transfer tax declarations in both Fulton County and Gwinnett County. The declarations must include a description of the transaction, identification of the entity and the real property, the consideration attributable to the real property, and the calculation of the tax due.
5. Local Counsel Coordination. Local counsel for the Georgia transfer tax filings is Talmadge Beaumont LLP (Catherine Beaumont, Partner), located at 1180 Peachtree Street NE, Suite 1900, Atlanta, GA 30309. Catherine Beaumont is an experienced Georgia real estate tax practitioner and has handled numerous controlling-interest transfer tax filings in Fulton County and Gwinnett County.
Rafael Dominguez, Working Associate in C&H's Real Estate group, is coordinating directly with Catherine Beaumont on the preparation and filing of the Georgia transfer tax declarations. Per email coordination dated May 22, 2024, Ms. Beaumont has confirmed that she will circulate draft declarations by May 24, 2024, for C&H review and approval. Final executed declarations and wire transfers for the tax payments will be coordinated as part of the closing mechanics on June 6, 2024.
B. Texas.
1. Applicable Statute. Texas does not impose a state-level real estate transfer tax. Unlike the majority of states, Texas has never enacted a statute imposing a tax or excise on the conveyance of real property, whether by recorded deed or by transfer of controlling interests in an entity owning Texas real property. Texas is one of a small number of states that has no transfer tax regime of any kind.
Accordingly, there is no controlling-interest transfer tax in Texas. The transfer of one hundred percent of the membership interests in each of the three Texas Target Entities — GMP Westlake LLC, GMP Katy LLC, and GMP Alliance LLC — does not give rise to any state-level transfer tax liability.
Nominal county recording fees apply in Texas for any instruments that are recorded with the county clerk, but no deed or other instrument of real property conveyance will be recorded in connection with this entity-level transfer. To the extent any ancillary documents (such as amendments to organizational documents of the Target Entities filed with the Texas Secretary of State) are required, only nominal filing fees would apply. These fees are immaterial in the context of this transaction.
2. Tax Rate and Base. The applicable transfer tax rate in Texas is zero, and no tax base calculation is required. There is no transfer tax obligation of any kind — whether based on consideration, fair market value, or any other measure — for the three Texas properties.
3. Properties and Estimated Tax. The three Texas properties and the estimated transfer tax are as follows:
• GMP Westlake LLC — Westlake Distribution Hub, 11500 Westlake Parkway, Houston, TX (Harris County): $0 transfer tax
• GMP Katy LLC — Katy Freeway Logistics Park, 22600 Katy Freeway, Katy, TX (Fort Bend County): $0 transfer tax
• GMP Alliance LLC — Alliance Commerce Center, 2800 Alliance Gateway Blvd, Fort Worth, TX (Tarrant County): $0 transfer tax
The estimated Texas transfer tax is $0 in the aggregate.
4. Filing Requirements. No transfer tax filing of any kind is required in Texas in connection with this transaction. No deed is being recorded, and no transfer tax declaration, return, or affidavit is required to be filed with any Texas state or county authority.
Minimal local recording fees may apply if any ancillary instruments are recorded in Harris County (Houston), Fort Bend County (Katy), or Tarrant County (Fort Worth), but no such recording is anticipated in connection with this entity-level transfer.
5. Local Counsel Confirmation. Local counsel for the Texas properties is Breckenridge Osgood LLP (James Breckenridge, Partner), located at 717 Texas Avenue, Suite 2600, Houston, TX 77002. James Breckenridge has confirmed, in his local counsel opinion delivered in connection with the transaction, that no Texas transfer tax obligation exists and that no transfer tax filing is required in connection with the transfer of membership interests in the three Texas Target Entities. A copy of this confirmation is on file in the C&H deal binder.
C. Florida.
1. Applicable Statute. Florida imposes a documentary stamp tax on transfers of real property and on transfers of beneficial interests in entities owning Florida real property. The primary statutory authority is Florida Statutes § 201.02, which imposes documentary stamp tax on "every written obligation to pay money" and on "deeds, instruments, or writings whereby any lands, tenements, or other realty or any interest therein shall be granted, assigned, transferred, or otherwise conveyed."
Critically, Florida has enacted a specific controlling-interest transfer provision applicable to entity-level transactions. Under Fla. Stat. § 201.02(1)(a), documentary stamp tax applies to transfers of a beneficial interest in an entity that holds an interest in Florida real property where the transfer results in the transferee acquiring a controlling interest in the entity. The statute is designed to capture transfers that would otherwise circumvent the documentary stamp tax by structuring the transaction as a transfer of entity interests rather than a conveyance of the underlying real property.
The transfer of one hundred percent (100%) of the membership interests in each of the three Florida Target Entities — GMP Lakeland LLC, GMP Southport LLC, and GMP Brickell LLC — from GMP Fund III to Fairwater clearly constitutes a transfer of a "controlling interest" in entities owning Florida real property. Accordingly, documentary stamp tax is imposed on the consideration attributable to the Florida real property held by each of the three Florida Target Entities.
Florida's documentary stamp tax regime is administered by the Florida Department of Revenue, and the tax is collected at the county level through the clerks of the circuit court in the respective counties where the real property is located.
2. Tax Rate and Base. The Florida documentary stamp tax rate is $0.70 per $100 of consideration (equivalent to 0.70%) in all counties except Miami-Dade County. The rate applies to the total consideration for the transfer, rounded up to the nearest $100 increment.
For transfers of real property located in Miami-Dade County, the documentary stamp tax is imposed at a rate of $0.60 per $100 of consideration (0.60%). Miami-Dade County also imposes a discretionary surtax of $0.45 per $100 for certain transfers; however, the surtax applies exclusively to transfers of single-family residences and does not apply to transfers of commercial real property. Because the Brickell Bay Office Building is a commercial office property, the applicable rate for the Miami-Dade property is $0.60 per $100, and no surtax applies. Palmetto Strauss PA has confirmed this analysis, but we recommend that the final rate determination be verified at the time of filing with the Miami-Dade County Clerk of the Circuit Court.
For the Lakeland property (Polk County) and the Jacksonville property (Duval County), the standard statewide rate of $0.70 per $100 applies.
Importantly, the tax base for Florida documentary stamp tax includes both the cash consideration and the amount of any indebtedness assumed by the transferee in connection with the transfer. This is a critical distinction from the transfer tax regimes in Georgia, Tennessee, and North Carolina, where the tax base is generally limited to the consideration for the transfer (i.e., the equity purchase price) and does not include assumed mortgage debt. Florida's inclusion of assumed indebtedness in the tax base significantly increases the documentary stamp tax liability for the Florida properties, because the tax is assessed on the total enterprise value (equity consideration plus assumed debt) attributable to each property rather than merely the equity consideration.
The allocated assumed debt and cash consideration for each Florida property must be computed separately based on the Exhibit K allocation and the loan allocation schedules for the Pinnacle Federal Bank and Veltrano Capital Lending Corp. facilities. The specific loan allocations are as follows:
• GMP Lakeland LLC — Lakeland Crossings Industrial (Polk County): Loan 1-F (a tranche of the Pinnacle Federal Bank aggregate facility allocated to this property)
• GMP Southport LLC — Southport Logistics Park (Duval County): Loan 1-G (a tranche of the Pinnacle Federal Bank aggregate facility allocated to this property)
• GMP Brickell LLC — Brickell Bay Office Building (Miami-Dade County): Loan 2-D (a tranche of the Veltrano Capital Lending Corp. aggregate facility allocated to this property)
The aggregate documentary stamp tax base for the three Florida properties therefore comprises both the allocated equity purchase price and the allocated assumed indebtedness for each property.
3. Properties and Estimated Tax. The three Florida properties and the estimated documentary stamp tax for each are as follows:
• GMP Lakeland LLC — Lakeland Crossings Industrial, 7100 Drane Field Road, Lakeland, FL (Polk County): Documentary stamp tax at $0.70 per $100 on allocated purchase price plus allocated assumed debt (Loan 1-F, portion of Pinnacle aggregate facility).
• GMP Southport LLC — Southport Logistics Park, 3200 Southport Connector Road, Jacksonville, FL (Duval County): Documentary stamp tax at $0.70 per $100 on allocated purchase price plus allocated assumed debt (Loan 1-G, portion of Pinnacle aggregate facility).
• GMP Brickell LLC — Brickell Bay Office Building, 1450 Brickell Avenue, Miami, FL (Miami-Dade County): Documentary stamp tax at $0.60 per $100 on allocated purchase price plus allocated assumed debt (Loan 2-D, portion of Veltrano aggregate facility).
The aggregate estimated documentary stamp tax for the three Florida properties is approximately $1,680,000. This represents the largest single-state transfer tax exposure in the portfolio, primarily because Florida taxes the full consideration including assumed mortgage debt, which substantially inflates the tax base relative to states that tax only the equity consideration.
Property-level calculations are set forth in Appendix A. The final amounts will be confirmed by Palmetto Strauss PA upon receipt of the finalized purchase price allocation and loan allocation schedules.
4. Filing Requirements. Florida documentary stamp tax returns are filed with the Florida Department of Revenue, and the tax is collected through the clerks of the circuit court in the counties where the real property is located. The tax is due upon transfer and must be paid at or before closing.
For controlling-interest transfers, the Florida Department of Revenue requires the filing of a documentary stamp tax return (Form DR-228) identifying the entity, the real property, the consideration (including assumed debt), and the calculation of the tax due. The return must be filed with the clerk of the circuit court in each county where the real property is located:
• Polk County — Clerk of the Circuit Court, Lakeland, Florida (GMP Lakeland LLC)
• Duval County — Clerk of the Circuit Court, Jacksonville, Florida (GMP Southport LLC)
• Miami-Dade County — Clerk of the Circuit Court, Miami, Florida (GMP Brickell LLC)
Palmetto Strauss PA (Roberto Strauss, Partner) is preparing the Florida documentary stamp tax returns for each of the three Florida properties. Mr. Strauss is coordinating with the clerks of the circuit court in Polk County, Duval County, and Miami-Dade County to confirm filing procedures and payment instructions for the closing.
5. Local Counsel Coordination. Local counsel for the Florida transfer tax filings is Palmetto Strauss PA (Roberto Strauss, Partner), located at 100 Southeast Second Street, Suite 2800, Miami, FL 33131. Mr. Strauss is an experienced Florida real estate tax practitioner with particular expertise in documentary stamp tax matters, including controlling-interest transfers. He has handled documentary stamp tax filings in numerous multi-property portfolio transactions throughout the state.
Mr. Strauss is responsible for preparing and filing the documentary stamp tax returns with the clerks of the circuit court in Polk County, Duval County, and Miami-Dade County, and for confirming the final tax calculations based on the Exhibit K allocation and the loan allocation schedules. He is also coordinating with C&H on the inclusion of the documentary stamp tax payments in the closing funds flow memorandum.
D. Tennessee.
1. Applicable Statute. Tennessee imposes a transfer tax on conveyances of realty under the Tennessee Code, Tenn. Code Ann. § 67-4-409. The transfer tax, commonly referred to as the Tennessee "deed tax" or "realty transfer tax," applies to the transfer of real property located within the State of Tennessee.
Tennessee has enacted a controlling-interest transfer provision that extends the transfer tax to transfers of controlling interests in entities that own Tennessee real property. Under Tenn. Code Ann. § 67-4-409, the transfer tax applies to the transfer of more than fifty percent (50%) of the total ownership interests in an entity that owns real property in Tennessee, when the transfer has the effect of transferring control of the entity to a new owner. The statute is intended to prevent the avoidance of transfer tax through entity-level structuring.
In this transaction, Fairwater is acquiring one hundred percent (100%) of the membership interests in each of the three Tennessee Target Entities — GMP Murfreesboro LLC, GMP Cool Springs LLC, and GMP Mount Juliet LLC — from GMP Fund III. The acquisition of 100% of the membership interests clearly exceeds the 50% controlling-interest threshold, and the transfer triggers the Tennessee transfer tax with respect to each of the three Tennessee properties.
The Tennessee transfer tax is administered by the Tennessee Department of Revenue and is collected at the county level through the registers of deeds in the respective counties where the real property is located.
2. Tax Rate and Base. The Tennessee transfer tax is imposed at a rate of $0.37 per $100 of consideration (equivalent to 0.37%). The tax is calculated on the actual consideration for the transfer, which in the context of a controlling-interest transfer is the consideration attributable to the real property.
Unlike Florida, Tennessee does not include assumed indebtedness in the tax base for the transfer tax. The tax is based on the "actual consideration" for the transfer, which is interpreted to mean the equity consideration (i.e., the allocated purchase price per Exhibit K) rather than the total enterprise value including assumed debt. This is a significant distinction that results in a materially lower tax base — and consequently a lower tax liability — for the Tennessee properties compared to the Florida properties.
It should also be noted that Tennessee imposes a state mortgage registration tax on new indebtedness secured by Tennessee real property, at a rate of $0.115 per $100 of indebtedness (0.115%). However, because the existing mortgages secured by the Tennessee properties are being assumed by Fairwater (through the entity-level transfer structure) and no new mortgage instruments are being executed or recorded, no Tennessee mortgage registration tax should be triggered in connection with this transaction. The mortgage registration tax savings attributable to the entity-level structure and debt assumption are discussed in Section V below.
3. Properties and Estimated Tax. The three Tennessee properties and the estimated transfer tax for each are as follows:
• GMP Murfreesboro LLC — Murfreesboro Distribution Center, 1600 Joe B. Jackson Parkway, Murfreesboro, TN (Rutherford County): Transfer tax at $0.37 per $100 on allocated purchase price per Exhibit K. Assumed debt attributable to this property is a tranche of the Pinnacle Federal Bank aggregate facility (Loan 1-H), but the assumed debt is not included in the Tennessee tax base.
• GMP Cool Springs LLC — Cool Springs Office Park, 5000 Virginia Way, Brentwood, TN (Williamson County): Transfer tax at $0.37 per $100 on allocated purchase price per Exhibit K. Assumed debt attributable to this property is a tranche of the Veltrano Capital Lending Corp. aggregate facility (Loan 2-C), but the assumed debt is not included in the Tennessee tax base.
• GMP Mount Juliet LLC — Mount Juliet Commerce Park, 400 South Mount Juliet Road, Mount Juliet, TN (Wilson County): Transfer tax at $0.37 per $100 on allocated purchase price per Exhibit K. Assumed debt attributable to this property is a tranche of the Sycamore Life Insurance Company aggregate facility (Loan 3-B), but the assumed debt is not included in the Tennessee tax base.
The aggregate estimated Tennessee transfer tax for the three Tennessee properties is approximately $740,000. Property-level calculations are set forth in Appendix A.
4. Filing Requirements. Tennessee transfer tax is reported through the filing of a transfer tax affidavit with the register of deeds in each county where the real property is located. The affidavit must identify the parties, the entity, the real property, the consideration for the transfer, and the calculation of the tax due. The tax is due at the time of transfer and must be paid in conjunction with the filing of the affidavit.
For the three Tennessee properties, the filing obligations are as follows:
• Rutherford County — Register of Deeds, Murfreesboro, Tennessee (GMP Murfreesboro LLC)
• Williamson County — Register of Deeds, Franklin, Tennessee (GMP Cool Springs LLC)
• Wilson County — Register of Deeds, Lebanon, Tennessee (GMP Mount Juliet LLC)
Ellsworth Ridley LLP (Diane Ellsworth, Partner) is responsible for preparing and filing the Tennessee transfer tax affidavits with the registers of deeds in Rutherford County, Williamson County, and Wilson County. The affidavits will be circulated to C&H for review and approval prior to execution and filing at closing.
5. Local Counsel Coordination. Local counsel for the Tennessee transfer tax filings is Ellsworth Ridley LLP (Diane Ellsworth, Partner), located at 424 Church Street, Suite 1500, Nashville, TN 37219. Ms. Ellsworth has extensive experience with Tennessee real estate transfer taxes and controlling-interest transfer provisions and has handled transfer tax filings for numerous portfolio acquisitions in the Nashville metropolitan area and throughout the state.
Ms. Ellsworth is coordinating with C&H and with the registers of deeds in each of the three applicable counties to confirm filing procedures and payment instructions for the closing. Draft affidavits will be circulated by May 24, 2024, consistent with the overall closing coordination timeline set forth in Section VI below.
E. North Carolina
1. Applicable Statute. North Carolina imposes an excise tax on conveyances of real property under N.C. Gen. Stat. § 105-228.30. The excise tax, commonly referred to as the North Carolina "revenue stamps" or "excise stamps," applies to the transfer of real property located within the State of North Carolina.
North Carolina has enacted a controlling-interest transfer provision that extends the excise tax to transfers of a controlling interest in an entity that owns North Carolina real property. Under N.C. Gen. Stat. § 105-228.30, a "controlling interest" is defined as more than fifty percent (50%) of the total ownership interest in the entity. The transfer of a controlling interest in an entity that owns North Carolina real property is treated as a transfer of the real property for purposes of the excise tax.
In this transaction, Fairwater is acquiring one hundred percent (100%) of the membership interests in GMP SouthPark LLC, the sole North Carolina Target Entity, from GMP Fund III. Because the acquisition of 100% of the membership interests clearly exceeds the 50% controlling-interest threshold, the transfer triggers the North Carolina excise tax with respect to the SouthPark Corporate Center property located in Charlotte, Mecklenburg County, North Carolina.
2. Tax Rate and Base. The North Carolina excise tax is imposed at a rate of $1.00 per $500 of consideration, which is equivalent to $2.00 per $1,000, or 0.20% (twenty basis points). The tax is calculated on the consideration for the transfer, which in the context of a controlling-interest transfer is the consideration attributable to the real property (i.e., the allocated purchase price per Exhibit K).
Mecklenburg County (Charlotte) does not impose a separate local transfer tax on controlling-interest transfers beyond the state excise tax. This has been confirmed by Haversham Cole PLLC based on their review of applicable Mecklenburg County ordinances and their discussions with the Mecklenburg County Register of Deeds. The standard state excise tax rate of $1.00 per $500 applies, with no local surcharge or supplemental tax.
It is worth noting that certain North Carolina municipalities have historically considered imposing local transfer taxes or land transfer taxes, but no such tax is currently in effect in Charlotte or Mecklenburg County as of the date of this memorandum. We recommend that this be re-confirmed by local counsel at the time of closing to account for any legislative changes that may occur in the interim.
3. Properties and Estimated Tax. There is one North Carolina property in the portfolio:
• GMP SouthPark LLC — SouthPark Corporate Center, 6200 Fairview Road, Charlotte, NC (Mecklenburg County): Excise tax at $1.00 per $500 (0.20%) on allocated purchase price per Exhibit K. Assumed debt attributable to this property is a tranche of the Veltrano Capital Lending Corp. aggregate facility (Loan 2-B), but the assumed debt is not included in the North Carolina excise tax base.
The estimated North Carolina excise tax for the SouthPark Corporate Center property is approximately $180,000. This is the smallest single-state transfer tax exposure in the portfolio, reflecting both the relatively modest size of the property (one property with 218,000 RSF) and the moderate tax rate (0.20%).
The property-level calculation is set forth in Appendix A.
4. Filing Requirements. The North Carolina excise tax is reported through the filing of an excise tax declaration (sometimes referred to as a "revenue stamp affidavit") with the register of deeds in the county where the real property is located. For the SouthPark Corporate Center property, the filing is made with the Mecklenburg County Register of Deeds, Charlotte, North Carolina.
The declaration must identify the parties, the entity, the real property, the consideration for the transfer, and the calculation of the tax due. The tax is due at the time of transfer and must be paid in conjunction with the filing of the declaration.
Haversham Cole PLLC (Marshall Haversham, Partner) is responsible for preparing and filing the North Carolina excise tax declaration with the Mecklenburg County Register of Deeds.
5. Local Counsel Coordination. Local counsel for the North Carolina transfer tax filing is Haversham Cole PLLC (Marshall Haversham, Partner), located at 301 South College Street, Suite 1400, Charlotte, NC 28202. Mr. Haversham is an experienced North Carolina real estate practitioner and has handled excise tax filings for controlling-interest transfers in Mecklenburg County and throughout the state.
Mr. Haversham is coordinating with C&H on the preparation and filing of the excise tax declaration and will circulate a draft declaration for C&H review by May 24, 2024. Final execution and payment will be coordinated as part of the closing mechanics on June 6, 2024.
IV. Summary of Estimated Transfer Tax Exposure
A. Aggregate Summary Table
The following table summarizes the estimated transfer tax exposure by state across all fourteen properties in the portfolio:
Florida represents the largest single-state transfer tax exposure, accounting for approximately 43.6% of the total estimated transfer tax liability. This is attributable to two factors: (i) Florida's relatively high documentary stamp tax rate (0.60% to 0.70%, depending on the county), and (ii) Florida's inclusion of assumed mortgage debt in the tax base, which significantly inflates the taxable consideration for each Florida property. Georgia accounts for approximately 32.5% of the total estimated liability, Tennessee accounts for approximately 19.2%, North Carolina accounts for approximately 4.7%, and Texas accounts for zero.
B. Allocation Per PSA
Section 10.4(b) of the PSA provides:
"All transfer taxes, documentary stamp taxes, excise taxes, and similar charges imposed by any federal, state, or local government in connection with the transactions contemplated hereby shall be borne equally by Buyer and Seller (50/50). Each party shall cooperate with the other in the preparation and filing of all transfer tax returns and declarations required to be filed in connection with the closing."
Based on the aggregate estimated transfer tax exposure of $3,850,000, the allocation is as follows:
• Buyer's (Fairwater's) share: $3,850,000 × 50% = $1,925,000
• Seller's (GMP Fund III's) share: $3,850,000 × 50% = $1,925,000
These transfer tax amounts will be reflected on the closing settlement statements for both Buyer and Seller and will be included in the closing funds flow memorandum prepared by C&H. The actual amounts may vary slightly from the estimates set forth in this memorandum based on the final Exhibit K allocation and any rounding adjustments required by the applicable state and county authorities. Any adjustments to the transfer tax amounts will be allocated 50/50 between Buyer and Seller in accordance with Section 10.4(b) of the PSA.
V. Impact of Entity-Level Structure on Transfer Tax Liability
A. Comparison to Asset-Level Transfer
A central question in any entity-level real property acquisition is the extent to which the entity-level structure affects the transfer tax exposure as compared to a traditional asset-level purchase in which the buyer acquires fee simple title through recorded deeds. The answer varies by jurisdiction, as some states impose transfer taxes only on recorded deeds while other states (like Georgia, Florida, Tennessee, and North Carolina) have enacted controlling-interest transfer statutes that extend the transfer tax to entity-level transactions.
In this transaction, the entity-level structure does not avoid transfer tax in four of the five states:
(a) Georgia: The Georgia controlling-interest transfer statute applies to the transfer of 100% of the membership interests in each Georgia Target Entity. The transfer tax is the same as it would be for a direct conveyance of the underlying real property by recorded deed. The entity-level structure provides no transfer tax savings in Georgia with respect to the real estate transfer tax itself.
(b) Florida: The Florida documentary stamp tax on controlling-interest transfers applies to the transfer of 100% of the membership interests in each Florida Target Entity. The documentary stamp tax is imposed at the same rate as it would be for a direct conveyance by recorded deed. Moreover, because the tax base includes assumed indebtedness, the entity-level structure does not reduce the documentary stamp tax exposure. The entity-level structure provides no documentary stamp tax savings in Florida.
(c) Tennessee: The Tennessee controlling-interest transfer statute applies to the transfer of 100% of the membership interests in each Tennessee Target Entity. The transfer tax rate is the same as for a direct conveyance. The entity-level structure provides no transfer tax savings in Tennessee with respect to the realty transfer tax itself.
(d) North Carolina: The North Carolina excise tax on controlling-interest transfers applies to the transfer of 100% of the membership interests in GMP SouthPark LLC. The excise tax rate is the same as for a direct conveyance. The entity-level structure provides no excise tax savings in North Carolina.
In Texas, the absence of any transfer tax — whether for direct conveyances or entity-level transfers — means that there is no transfer tax benefit (or detriment) specific to the entity-level structure. The result would be the same under either an asset-level or entity-level structure: no Texas transfer tax.
However, while the entity-level structure does not avoid the controlling-interest transfer taxes in the four applicable states, it provides a significant benefit in avoiding mortgage recording taxes and intangible taxes that would be triggered if new mortgage instruments were required. This is discussed in Section V.B below.
B. Avoided Taxes
The entity-level structure, combined with the assumption of existing mortgage indebtedness, provides significant savings by avoiding mortgage recording taxes, intangible recording taxes, and documentary stamp taxes on new mortgage instruments. In a direct asset-level transfer, the existing mortgage loans would typically need to be refinanced or replaced (because the borrower entity would change), and new deeds of trust, deeds to secure debt, or mortgages would need to be executed and recorded in each applicable jurisdiction. The recording of new mortgage instruments would trigger mortgage recording and intangible taxes in several states.
The avoided taxes are estimated as follows:
(a) Georgia — Intangible Recording Tax. Georgia imposes an intangible recording tax at a rate of $1.50 per $500 (0.30%) on new deeds to secure debt recorded in the state. If new deeds to secure debt had been required for the assumed indebtedness allocated to the four Georgia properties, the intangible recording tax would have been assessed on the full principal amount of the new security instruments. Based on the assumed debt allocated to the Georgia properties (estimated at approximately $612,000,000 × the Georgia allocation percentage), the Georgia intangible recording tax savings resulting from the entity-level structure and debt assumption is estimated at approximately $1,836,000 (calculated as 0.30% × the assumed debt allocated to Georgia properties). This is a substantial savings and represents a material economic benefit of the entity-level structure.
(b) Florida — Documentary Stamp Tax and Intangible Tax on Mortgages. Florida imposes a documentary stamp tax on promissory notes and mortgages at a rate of $0.35 per $100 (0.35%) and a nonrecurring intangible tax on new mortgages at a rate of $0.002 per $1.00 (0.20%). If new mortgage instruments had been required for the assumed indebtedness allocated to the three Florida properties, both the documentary stamp tax on the note and the intangible tax on the mortgage would have been triggered. The combined rate of 0.55% on the assumed debt allocated to the Florida properties represents a material additional cost that is avoided through the entity-level structure and debt assumption.
(c) Tennessee — Mortgage Registration Tax. Tennessee imposes a mortgage registration tax at a rate of $0.115 per $100 (0.115%) on new indebtedness secured by Tennessee real property. If new mortgage instruments had been required for the assumed indebtedness allocated to the three Tennessee properties, the mortgage registration tax would have been triggered. The mortgage registration tax savings resulting from the entity-level structure and debt assumption is a further economic benefit.
In the aggregate, the mortgage recording and intangible tax savings across all applicable states resulting from the entity-level structure and debt assumption are estimated to be in excess of $3,000,000. These savings partially offset the controlling-interest transfer taxes imposed in the four applicable states and represent a key economic consideration supporting the entity-level transaction structure.
It should be noted that these savings are contingent on the existing lenders consenting to the transfer of membership interests without requiring the execution and recording of new mortgage instruments. As discussed in Section II.A above, lender consent applications have been submitted to Pinnacle Federal Bank, N.A., Veltrano Capital Lending Corp., and Sycamore Life Insurance Company. If any lender were to require the execution and recording of new mortgage instruments as a condition to consent, the mortgage recording and intangible tax savings described above would be reduced or eliminated with respect to that lender's facilities.
VI. Timing and Coordination with Closing
The transfer tax returns and declarations in each applicable jurisdiction must be prepared and filed in connection with the closing of the transaction. The actual closing date is June 6, 2024. The following coordination timeline governs the preparation, review, and filing of transfer tax returns:
(a) Finalization of Exhibit K Allocation. The final allocation of the Purchase Price among the fourteen properties per PSA Exhibit K must be finalized before the transfer tax returns can be prepared with exact dollar amounts. The Exhibit K allocation has been confirmed based on the appraised values established by Stonebridge Valuation Advisors, LLC. The final appraised values and the resulting allocation percentages have been circulated to all local counsel for use in preparing the transfer tax returns.
(b) Local Counsel Draft Returns — May 24, 2024. Each local counsel firm is responsible for preparing and circulating draft transfer tax returns, declarations, and affidavits to C&H by May 24, 2024. This date coincides with the lender consent deadline, and the closing team should coordinate to ensure that both lender consent and transfer tax return preparation are proceeding on parallel tracks. The following local counsel firms have confirmed their commitment to the May 24, 2024 circulation deadline:
• Talmadge Beaumont LLP (Georgia — 4 properties)
• Palmetto Strauss PA (Florida — 3 properties)
• Ellsworth Ridley LLP (Tennessee — 3 properties)
• Haversham Cole PLLC (North Carolina — 1 property)
• Breckenridge Osgood LLP (Texas — no filing required; confirmation only)
(c) C&H Review and Approval — May 28, 2024. Upon receipt of draft returns from local counsel, C&H will review the returns for accuracy, consistency with the Exhibit K allocation, and compliance with the applicable state statutes. Any comments or revisions will be communicated to local counsel promptly. C&H will provide final approval of all transfer tax returns by May 28, 2024.
(d) Execution and Filing at Closing — June 6, 2024. Executed transfer tax returns and the corresponding tax payments will be filed with the applicable state and county authorities on the closing date. Transfer tax payments will be wired from the closing escrow as part of the closing funds flow. Wire instructions for each state and county tax authority will be included in the closing funds flow memorandum prepared by C&H.
Transfer tax payments will be reflected in the funds flow memorandum prepared by C&H, which will identify each transfer tax payment, the applicable state and county authority, the wire amount, and the wire instructions. The funds flow memorandum will also reflect the 50/50 allocation of transfer taxes between Buyer and Seller in accordance with Section 10.4(b) of the PSA.
Ashford Prewitt LLP (Naomi Ikeda, CPA, Tax Partner), Fairwater's independent accounting firm, is coordinating with C&H on transfer tax return preparation and estimated amounts by jurisdiction. Per email coordination dated May 20, 2024, from Sylvia Hartwell to Naomi Ikeda, C&H has provided Ms. Ikeda with preliminary estimates of the transfer tax liability for each state, and Ms. Ikeda has confirmed that the estimated amounts are consistent with Fairwater's internal projections and will be incorporated into Fairwater's closing cost analysis.
Caldwell Murray & Oakes LLP (William Oakes, CPA, Engagement Partner), GMP Fund III's independent accounting firm, is separately coordinating Seller's share of the transfer tax obligations. C&H has been in communication with Seller's counsel regarding the allocation and payment mechanics for Seller's 50% share of the transfer taxes at closing.
VII. Interaction with R&W Insurance and Indemnification
The representations and warranties insurance policy obtained in connection with this transaction (the "R&W Policy") has been issued by Sentinel Specialty Insurance Company with a policy limit of $55,000,000. The R&W Policy provides coverage for losses arising from breaches of the Seller's representations and warranties set forth in the PSA, subject to the terms, conditions, and exclusions of the policy.
Transfer tax compliance is not a covered matter under the R&W Policy. The R&W Policy does not insure against the risk that transfer taxes have been incorrectly calculated, underpaid, or improperly filed. Transfer tax obligations are addressed as a closing cost item under the PSA and are allocated between Buyer and Seller pursuant to Section 10.4(b), rather than being treated as a representation or warranty subject to indemnification under the R&W Policy.
Under the PSA, transfer taxes are not the subject of a specific Seller representation or warranty. Rather, the PSA addresses transfer taxes as a shared closing cost item with a 50/50 allocation. This treatment is consistent with market practice for portfolio acquisitions of this size and type, where transfer tax obligations are deterministic (i.e., calculated based on known tax rates and allocated consideration) rather than contingent or uncertain.
If any state or local tax authority subsequently asserts that the transfer taxes were underpaid — for example, due to a disagreement regarding the proper tax base, the applicable rate, or the interpretation of the controlling-interest transfer provisions — the PSA's general indemnification provisions in Article XI may apply to allocate the resulting liability between Buyer and Seller. However, the specific transfer tax allocation provision in Section 10.4(b) (50/50) would likely govern the economic burden of any such additional assessment, consistent with the parties' intent that transfer taxes be borne equally.