**Attachments:** (1) Joint Venture Agreement — Harbor Point Development JV, LLC (Initial Draft, October 10, 2025) [jv-agreement-initial-draft.docx]
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
Sam:
I hope this message finds you well. I am a senior associate at Calderwood & Harkness LLP working with Doug Fairchild on behalf of our client, Fairwater Real Estate Investment Trust ("Fairwater"), in connection with the proposed joint venture between Fairwater and Prescott Capital Partners, LP ("Prescott") for the development of Harbor Point Towers in Baltimore, Maryland. We look forward to working with you and Megan on this transaction.
Attached please find the initial draft of the Joint Venture Agreement (the "JV Agreement") for Harbor Point Development JV, LLC, a Delaware limited liability company to be formed by Fairwater HP Manager, LLC ("Fairwater Manager") and Prescott HP Investor, LLC ("Prescott Investor"). The draft has been prepared on the basis of the Letter of Intent executed by the parties on September 22, 2025. Please note that we will separately circulate an initial draft of the Amended and Restated Operating Agreement during the week of October 13, with a target circulation date of October 17, 2025. The Operating Agreement will contain the detailed governance, waterfall, and ancillary provisions referenced in and contemplated by the JV Agreement.
For ease of your review, I have set forth below a summary of the key structural terms reflected in the draft, followed by an open issues summary identifying the principal points on which we anticipate discussion.
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**I. SUMMARY OF KEY STRUCTURAL TERMS**
**JV Entity**
Harbor Point Development JV, LLC, a Delaware limited liability company. Registered agent: Incorporators & Associates, Inc., 1209 Orange Street, Wilmington, DE 19801. The JV will be qualified as a foreign limited liability company in the State of Maryland.
**Members**
- *Fairwater HP Manager, LLC* (a Maryland LLC and wholly owned subsidiary of Fairwater Real Estate Investment Trust) — 30% member; Managing Member / Operating Partner - *Prescott HP Investor, LLC* (a Delaware LLC and wholly owned subsidiary of Prescott Capital Partners, LP) — 70% member; Non-Managing Member / Capital Partner
**Total JV Equity: $240,000,000**
- Fairwater: $72,000,000 (30%) - Prescott: $168,000,000 (70%)
**Total Project Cost: $576,000,000**
- Land Acquisition: $54,000,000 - Hard Costs: $432,000,000 - Soft Costs: $90,000,000
**Construction Financing**
$336,000,000 construction loan from Meridian National Bank, N.A. (Term SOFR + 275 bps; 36-month term plus two 6-month extensions; loan-to-cost of approximately 58.33%).
**Project**
Harbor Point Towers — two 28-story residential towers comprising 610 units with approximately 45,000 square feet of ground-floor retail, located at 1500–1580 Wills Street, Baltimore, MD 21231 (Block 7419, Lots 1–6, Baltimore City).
**Land Seller:** Harbor East Land Holdings, LLC (acquisition price: $54,000,000)
**Governing Law:** Maryland
**Tax Classification:** Partnership for federal income tax purposes. Tax Matters Partner / Partnership Representative: Fairwater HP Manager, LLC.
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**II. CAPITAL CONTRIBUTION FRAMEWORK**
The draft provides for the following capital contribution structure:
- *Initial Capital Call:* 25% of total equity ($60,000,000) due at closing — Fairwater: $18,000,000; Prescott: $42,000,000. - *Subsequent Capital Calls:* Pro rata (30/70) on 15 business days' written notice, as and when required pursuant to the approved JV budget. - *Default Remedies:* The draft addresses dilution mechanics and other default remedies in the event of a member's failure to fund. These provisions will be further detailed in the Capital Contribution Agreement and Operating Agreement.
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**III. DISTRIBUTION WATERFALL**
The draft reflects the following distribution waterfall:
- **Tier 1 — Return of Capital:** 100% distributed pro rata (30/70) until all contributed capital has been returned to the members. - **Tier 2 — Preferred Return:** 9.0% IRR (compounded quarterly) to the members pro rata (30/70) on unreturned capital contributions. - **Tier 3 — Catch-Up:** 60% to Fairwater (as promote) / 40% to Prescott, until Fairwater has received 20% of cumulative distributions in excess of return of capital. - **Tier 4 — Residual Split:** 80% to Prescott / 20% to Fairwater; provided that if the project-level IRR exceeds 15%, the residual split shifts to 70% Prescott / 30% Fairwater (second promote tier).
Fairwater's position is that this promote structure appropriately compensates the operating partner for development risk, expertise, and the scope of Fairwater's obligations as Managing Member, including the completion guaranty and active management role throughout the development and operating periods.
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**IV. FEES TO FAIRWATER (OPERATING PARTNER)**
- *Development Management Fee:* 3.5% of hard costs ($432,000,000 × 3.5% = $15,120,000), paid monthly during construction pro rata to costs incurred. - *Property Management Fee (Post-Stabilization):* 3.0% of Effective Gross Revenue. - *Disposition Fee:* 1.0% of gross sale price upon any sale of the property or JV interests. - No separate asset management fee is payable to Fairwater at the JV level.
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**V. GOVERNANCE AND MAJOR DECISIONS**
Fairwater HP Manager, LLC, as Managing Member, will have day-to-day authority over development, construction oversight, leasing, and property management. Prescott Investor's consent will be required for the following enumerated major decisions:
1. Annual budget approval and amendments exceeding 5% of any budgeted line item; 2. Any single unbudgeted expenditure exceeding $500,000; 3. Financing, refinancing, or modification of the construction loan; 4. Sale, transfer, or encumbrance of the property or JV interests; 5. Admission of additional members; 6. Litigation settlements exceeding $250,000; 7. Casualty/condemnation elections (rebuild vs. wind down); and 8. Voluntary bankruptcy or dissolution of the JV.
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**VI. BUY-SELL / ROFO PROVISIONS**
- *Triggering Event:* Either member may initiate after the 5th anniversary of closing (i.e., after January 12, 2031, assuming signing on January 12, 2026). - *ROFO Response Period:* 60 days. - *Appraisal Mechanism:* Each party selects one MAI-certified appraiser. If the two appraised values differ by more than 10%, a third appraiser is appointed. Fair market value equals the average of the two closest appraisals.
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**VII. REMOVAL OF MANAGING MEMBER**
Prescott may remove Fairwater as Managing Member upon the occurrence of any of the following:
(a) Uncured material default (subject to a 30-day cure period); (b) Fraud or willful misconduct; (c) Bankruptcy of Fairwater or Fairwater HP Manager, LLC; or (d) Key-person event — the departure of both Harold K. Brennan (CEO) and Marcus D. Okonkwo (EVP, Development) without replacement personnel approved by Prescott within 90 days.
Upon removal for cause, all accrued and unpaid promote is forfeited. Upon removal without cause, all accrued but unpaid promote is retained by Fairwater.
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**VIII. REIT COMPLIANCE**
The draft includes standard REIT savings provisions reflecting Fairwater's status as a publicly traded Maryland real estate investment trust (NYSE: FWT), including:
- Provisions designed to prevent a "closely held" violation under Section 856(h) of the Internal Revenue Code; - Gross income testing cooperation covenants; - Prescott's covenant not to take or fail to take actions that would cause JV income to fail the REIT gross income tests under Sections 856(c)(2) and (3); - Fairwater's right to force distribution of at least 100% of REIT taxable income attributable to its JV interest.
A separate REIT Compliance Side Letter will also be circulated. Fairwater's position is that these provisions are customary and non-negotiable given Fairwater's REIT status and applicable regulatory requirements.
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**IX. OPEN ISSUES SUMMARY**
Set forth below is a summary of the principal issues on which Fairwater has taken specific positions and on which we anticipate discussion with Prescott:
1. **Promote Structure.** Fairwater views the two-tier promote (20% base / 30% above 15% IRR) as market for a transaction of this size and complexity where the operating partner bears completion guaranty risk and active development exposure. We expect Prescott may propose modifications to the hurdle rates or promote percentages, and we are prepared to discuss.
2. **Scope of Major Decision Consent Rights.** The draft reflects what we believe is a balanced list of Prescott consent rights. Fairwater's position is that day-to-day operational decisions — including contractor selection for amounts within the approved budget — must remain within the Managing Member's sole discretion to avoid construction delays and related cost overruns.
3. **Budget Variance Threshold.** The 5% per-line-item threshold provides appropriate flexibility for construction-phase management while affording Prescott meaningful budget oversight. Fairwater is prepared to discuss whether a separate aggregate variance cap is warranted but believes the per-line-item approach is the appropriate starting point.
4. **Key-Person Clause.** The draft covers the departure of both Harold K. Brennan and Marcus D. Okonkwo, with a 90-day replacement cure period. Fairwater's position is that the key-person clause should trigger only upon the departure of both individuals (not either one individually) and that the 90-day cure period is necessary to identify and onboard qualified replacements of appropriate caliber for a project of this scope.
5. **Removal Without Cause — Promote Retention.** Fairwater strongly believes that if Prescott elects to remove Fairwater as Managing Member without cause, all accrued but unpaid promote must be preserved. This is a fundamental economic protection for the operating partner and is essential to the overall balance of the transaction structure.
6. **REIT Savings Provisions.** As noted above, these provisions are essential and customary. Fairwater will require Prescott's affirmative cooperation on income and asset testing, including the mandatory distribution right. We anticipate these will be addressed both in the Operating Agreement and in a separate REIT Compliance Side Letter.
7. **Completion Guaranty Scope.** The draft contemplates that Fairwater will provide a lien-free completion guaranty in favor of Meridian National Bank, N.A. Fairwater's position is that Prescott should share in completion guaranty exposure proportionate to its equity share (70%), or, alternatively, the promote structure should reflect the asymmetric guaranty risk borne solely by Fairwater. We anticipate this will be a significant point of negotiation.
8. **Buy-Sell Lockout Period.** The five-year lockout from signing is appropriate to allow the project to reach stabilization (estimated March 2029) and generate meaningful operating history before either party may trigger a buy-sell. Fairwater is not inclined to shorten this period.
9. **Insurance Requirements.** The draft requires builder's risk insurance at full replacement cost (carrier: Greystone Mutual Insurance Company), commercial general liability of $10,000,000 per occurrence / $20,000,000 aggregate, and umbrella/excess coverage of $50,000,000. The owner's title policy will be issued by Tidewater Insurance Group, Inc. in the amount of $54,000,000 at acquisition, increased to full project cost upon completion. Fairwater believes these levels are appropriate and consistent with market practice for projects of this size.
10. **Tax Structure / Partnership Representative.** The draft designates Fairwater HP Manager, LLC as Partnership Representative under Section 6223 of the Code. Allocations follow Sections 704(b) and 704(c) principles with a qualified income offset and minimum gain chargeback. Maryland pass-through entity tax elections remain to be discussed. A separate Tax Protection Agreement and detailed Tax Structure Memorandum will follow.
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**X. NEXT STEPS**
To maintain the transaction timeline, we respectfully request that Whitmore, Calder & Briggs circulate Prescott's comments to the JV Agreement by no later than the week of October 27, 2025. We understand that Prescott's investment committee approval is expected in early November, with a target date of November 5, 2025, and timely exchange of comments will be important to maintaining that schedule.
On our end, Calderwood & Harkness will circulate the initial draft of the Amended and Restated Operating Agreement by October 17, 2025. We would also be happy to schedule a call among counsel next week to discuss any preliminary questions or to walk through the draft in greater detail.
For your planning purposes, the construction loan term sheet from Meridian National Bank, N.A. is expected in mid-November, and the parallel diligence workstreams — including title, survey, environmental, and appraisal — are proceeding on track. Our current target dates are as follows:
- Target Signing Date: January 12, 2026 - Target Land Closing / Initial Equity Funding: January 30, 2026
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Please do not hesitate to reach out if you or Megan have any questions or would like to discuss any aspect of the draft. We look forward to working with you on this transaction.
Please note that this draft is subject to Fairwater's ongoing review and comment, and circulation of this draft does not constitute a waiver of any positions, rights, or remedies of Fairwater or Fairwater HP Manager, LLC.
Best regards,
**Cynthia Ho** Calderwood & Harkness LLP 100 International Drive, Suite 2600 Baltimore, MD 21202 T: (410) 555-3180 E: cho@calderwoodharkness.com
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