Sam,
I hope this note finds you well. I am writing to memorialize in writing the resolution of all remaining open points on the Joint Venture Agreement and the Amended and Restated Operating Agreement for Harbor Point Development JV, LLC, as agreed at the principals' meeting held on Tuesday, January 6, 2026 in Baltimore. As you know, that meeting was attended by Harold K. Brennan (CEO & Chairman, Fairwater REIT), Marcus D. Okonkwo (EVP, Development, Fairwater REIT), Jonathan R. Whitfield (Co-Managing Partner, Prescott Capital Partners), and Andrew M. Castellano (Senior Principal / Deal Lead, Prescott Capital Partners).
Based on the resolutions outlined below, both sides are targeting execution of the JV Agreement and Operating Agreement on **Monday, January 12, 2026**. A detailed Final Issues Resolution Summary is attached hereto for your records. Clean execution-ready drafts of both the JV Agreement and the Amended and Restated Operating Agreement, incorporating all agreed resolutions, will follow under separate cover.
**SUMMARY OF FINAL AGREED TERMS — RESOLVED OPEN POINTS**
Set forth below is a numbered summary of each issue that remained open heading into the January 6 principals' meeting, together with the resolution reached on each:
**1. Distribution Waterfall / Promote Structure**
The parties have confirmed the following four-tier distribution waterfall:
(i) **Return of Capital.** 100% to members pro rata (30% to Fairwater HP Manager, LLC / 70% to Prescott HP Investor, LLC) until all contributed capital has been returned.
(ii) **Preferred Return.** 9.0% IRR (compounded quarterly) to members pro rata (30/70) on unreturned capital contributions.
(iii) **Catch-Up.** 60% to Fairwater / 40% to Prescott until Fairwater has received 20% of cumulative distributions above return of capital.
(iv) **Residual Split.** Base tier of 20% to Fairwater / 80% to Prescott; provided, however, that if the project-level IRR exceeds 15%, a second promote tier applies at 30% to Fairwater / 70% to Prescott on all distributions above such threshold.
As you will recall, the second promote tier triggered above a 15% project-level IRR was the final compromise reached at the January 6 meeting and represents the resolution of what had been the most actively discussed economic point between the parties.
**2. Removal of Managing Member / Key-Person Provisions**
Prescott HP Investor, LLC may remove Fairwater HP Manager, LLC as Managing Member of the JV upon the occurrence of any of the following:
(a) Uncured material default, subject to a **30-day cure period** following written notice;
(b) Fraud or willful misconduct by Fairwater or any of its officers, directors, or controlled affiliates acting on behalf of the JV;
(c) Bankruptcy of Fairwater HP Manager, LLC or Fairwater REIT, Inc. (or any successor entity); or
(d) A key-person event, defined as the departure of **both** Harold K. Brennan and Marcus D. Okonkwo from active involvement in the project without board-approved replacement personnel being designated within **90 days** of the later departure.
Upon removal **for cause** (clauses (a) through (d) above): Fairwater's promote interest shall be forfeited in its entirety. Upon removal **without cause**: Fairwater shall retain all accrued but unpaid promote as of the effective date of removal.
I would note for the record that these terms were agreed at the principals' meeting following extended discussion regarding the key-person replacement period. Prescott had initially sought a 60-day replacement window; Fairwater's position of 90 days was ultimately accepted, and we understand this resolution to be final.
**3. Major Decision Consent Rights**
The following actions shall constitute "Major Decisions" requiring the prior written consent of Prescott HP Investor, LLC:
(a) Approval of the annual budget and any amendments thereto exceeding **5% of any budgeted line item**;
(b) Any single expenditure exceeding **$500,000** that is not contemplated in the approved annual budget;
(c) Any financing, refinancing, or material modification of the construction loan or any other indebtedness of the JV;
(d) Any sale, transfer, exchange, or encumbrance of the Property or any JV interests (other than permitted transfers);
(e) Admission of additional members to the JV;
(f) Any litigation settlement or consent to judgment in an amount exceeding **$250,000**;
(g) Any casualty or condemnation election (i.e., election to rebuild versus wind down);
(h) Voluntary bankruptcy filing or dissolution of the JV.
The budget variance threshold of 5% per line item reflects the final compromise reached between the parties. Prescott had initially proposed a 3% threshold; the parties agreed that 5% struck the appropriate balance between operational flexibility and investor oversight.
**4. REIT Compliance / Savings Provisions**
Prescott has agreed to the following REIT savings provisions, which will be reflected in both the Amended and Restated Operating Agreement and a standalone REIT Compliance Side Letter between Prescott HP Investor, LLC and Fairwater HP Manager, LLC:
(a) A covenant by Prescott not to take any action, or fail to take any action, that would cause JV income to fail to qualify under the REIT gross income tests set forth in Sections 856(c)(2) and (3) of the Internal Revenue Code;
(b) Provisions ensuring the JV's activities do not cause Fairwater REIT, Inc. to be treated as a "closely held" REIT within the meaning of Section 856(h);
(c) Cooperation obligations relating to quarterly gross income testing and information sharing; and
(d) Fairwater's right to cause the JV to distribute at least 100% of REIT taxable income attributable to Fairwater's allocable share of JV income, to the extent required for Fairwater REIT, Inc. to satisfy its distribution requirements under Section 857.
**5. Buy-Sell / ROFO Mechanics**
The parties have confirmed the following terms governing the buy-sell and right of first offer:
(a) The buy-sell mechanism may not be triggered by either party until after the **5th anniversary** of the execution of the JV Agreement (i.e., after January 12, 2031);
(b) Upon receipt of a triggering notice, the non-initiating party shall have a **60-day response period** within which to match the stated price or elect to sell at the stated price; and
(c) If the parties cannot agree on fair market value, each party shall select one MAI-designated appraiser. If the two appraisals differ by more than 10%, the two appointed appraisers shall jointly select a third MAI appraiser. Fair market value shall equal the average of the two closest of the three appraisals.
**6. Development Management Fee**
(a) Fairwater HP Manager, LLC shall receive a development management fee equal to **3.5% of hard costs** ($432,000,000 × 3.5% = **$15,120,000**), payable monthly on a pro rata basis relative to hard costs incurred during the construction period.
(b) No separate construction management oversight fee shall be payable; such oversight is included within the development management fee.
(c) A **disposition fee** equal to 1.0% of gross sale price shall be payable to Fairwater HP Manager, LLC at the closing of any disposition of all or a material portion of the Property.
**7. Capital Call Mechanics / Default Remedies**
(a) The initial capital call at closing of the JV Agreement shall be 25% of total committed equity, or **$60,000,000** (Fairwater: $18,000,000; Prescott: $42,000,000).
(b) Subsequent capital calls shall be made pro rata (30/70) on **15 business days' written notice**, in amounts consistent with the approved JV budget.
(c) Default remedies, including dilution mechanics, shall be as set forth in the Capital Contribution Agreement, incorporating the agreed-upon dilution formula (1.5x penalty applied to defaulting member's unfunded commitment for purposes of recalculating percentage interests).
**8. Guaranty Structure (Construction Loan)**
(a) Fairwater REIT, Inc. (or a designated subsidiary acceptable to the lender) shall provide the Completion Guaranty and the Recourse Carve-Out ("bad boy") Guaranty to Meridian National Bank, N.A. in connection with the $336,000,000 construction loan.
(b) The Environmental Indemnity Agreement shall be provided jointly by the JV entity and Fairwater.
(c) Prescott HP Investor, LLC shall not be a guarantor or indemnitor under any loan document, consistent with its role as capital partner. This is confirmed and agreed.
**9. Tax Structure**
(a) Harbor Point Development JV, LLC shall be classified as a partnership for federal income tax purposes. No entity-level tax election (e.g., check-the-box election to be taxed as a corporation) shall be made.
(b) Fairwater HP Manager, LLC shall serve as Partnership Representative (Tax Matters Partner) under Section 6223 of the Internal Revenue Code, as amended by the Bipartisan Budget Act of 2015.
(c) Allocations of income, gain, loss, and deduction shall follow Sections 704(b) and 704(c) principles, including qualified income offset and minimum gain chargeback provisions as required by Treasury Regulations.
(d) Maryland pass-through entity tax elections under Md. Code Ann., Tax-Gen. § 10-102.1 shall be made as mutually agreed by the members on an annual basis.
(e) A Tax Protection Agreement shall be executed concurrently with the JV Agreement, addressing Section 704(c) allocations and providing protections against disproportionate recognition of taxable gain by either member in connection with capital account rebalancing, debt allocation shifts, or disposition events.
**10. Property Management Fee (Post-Stabilization)**
The property management fee shall be **3.0% of Effective Gross Revenue**, payable monthly. The form of Property Management Agreement, to be entered into between the JV and Fairwater Property Management, LLC (or such other Fairwater affiliate as may be designated), shall be attached as an exhibit to the Amended and Restated Operating Agreement.
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**EXECUTION MECHANICS AND NEXT STEPS**
Calderwood & Harkness will circulate **clean execution-ready drafts** of the JV Agreement and the Amended and Restated Operating Agreement, incorporating all of the agreed resolutions summarized above, by end of day tomorrow, **Friday, January 9, 2026**, for final review over the weekend.
We respectfully request that Whitmore, Calder & Briggs confirm that it has no further comments to the execution drafts by **close of business Monday, January 11, 2026**.
Signing is targeted for **January 12, 2026**. We would suggest execution by counterparts (with PDF signatures to be followed by wet-ink originals), unless your clients have a different preference.
All ancillary documents will be circulated concurrently for execution at signing, including: (i) the Capital Contribution Agreement; (ii) the REIT Compliance Side Letter; (iii) the Tax Protection Agreement; (iv) the Development Management Agreement; (v) the form of Property Management Agreement; (vi) the Pre-Formation Expenditure Reimbursement Agreement; and (vii) the Assignment and Assumption of Purchase and Sale Agreement.
**POST-SIGNING TIMELINE**
For completeness, I would briefly confirm the parties' agreed post-signing milestones:
- **January 30, 2026:** Initial equity funding and land closing. Acquisition of the approximately 8.2-acre site at 1500–1580 Wills Street, Baltimore, MD 21231 (Block 7419, Lots 1–6) from Harbor East Land Holdings, LLC for a purchase price of $54,000,000.
- **February 15, 2026:** Construction loan closing with Meridian National Bank, N.A. ($336,000,000; floating rate at Term SOFR + 275 basis points; 36-month initial term plus two 6-month extension options).
- **March 1, 2026:** Target construction commencement for Harbor Point Towers — two 28-story residential towers comprising approximately 610 residential units and approximately 45,000 square feet of ground-floor retail space.
As you know, Pinnacle General Contractors, Inc. executed the guaranteed maximum price contract on December 20, 2025 and has confirmed its readiness to mobilize upon construction loan closing. All diligence deliverables are in hand, including: the Phase I Environmental Site Assessment (Bayline Environmental, dated November 25, 2025); the ALTA/NSPS Land Title Survey (Calvert Surveying, LLC, dated December 3, 2025); the title commitment (Tidewater Insurance Group, commitment no. TIG-2025-41873, effective December 9, 2025); and the appraisal (Stonebridge Appraisal Associates, dated December 15, 2025).
Calderwood & Harkness will circulate an updated comprehensive closing checklist early next week.
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Sam, I want to express our sincere appreciation — and that of our clients at Fairwater — for the constructive and professional manner in which you, Megan, and the entire Whitmore Calder team have approached these negotiations. This has been a complex transaction with a number of hard-fought issues, and the collaborative spirit on both sides has been instrumental in bringing us to this point.
Please do not hesitate to call me directly at (410) 555-2800 or Cynthia at (410) 555-2814 with any questions. We will both be available over the weekend should you or your team need to discuss any aspect of the execution drafts.
We look forward to getting this signed on Monday.
With best regards,
**Douglas Fairchild** Partner, Real Estate Practice Group Calderwood & Harkness LLP 100 International Drive, Suite 2600 Baltimore, MD 21202 Tel: (410) 555-2800 Email: dfairchild@calderwoodharkness.com
**Cynthia Ho** Associate, Real Estate Practice Group Calderwood & Harkness LLP 100 International Drive, Suite 2600 Baltimore, MD 21202 Tel: (410) 555-2814 Email: cho@calderwoodharkness.com
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