PROPERTY MANAGEMENT AGREEMENT
HARBOR POINT TOWERS
1500–1580 Wills Street, Baltimore, Maryland 21231
by and between
HARBOR POINT DEVELOPMENT JV, LLC
as Owner
and
FAIRWATER REAL ESTATE INVESTMENT TRUST
as Manager
Form — To Be Executed Upon Substantial Completion
Attached as Exhibit [__] to the Amended and Restated Operating Agreement of Harbor Point Development JV, LLC dated January 12, 2026
CONFIDENTIAL TREATMENT REQUESTED — This document and its contents are confidential and proprietary. This form of Property Management Agreement is attached as an exhibit to the Amended and Restated Operating Agreement of Harbor Point Development JV, LLC and is subject to the confidentiality provisions thereof.
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PROPERTY MANAGEMENT AGREEMENT
This Property Management Agreement (this "Agreement") is entered into as of the Effective Date (as defined herein), by and between Harbor Point Development JV, LLC, a Delaware limited liability company qualified to do business in Maryland ("Owner"), and Fairwater Real Estate Investment Trust, a Maryland real estate investment trust ("Manager"). Owner and Manager are each sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. Owner is Harbor Point Development JV, LLC, a Delaware limited liability company qualified to do business in the State of Maryland, with its registered agent at Incorporators & Associates, Inc., 1209 Orange Street, Wilmington, Delaware 19801. Owner is the fee simple owner of that certain real property known as Harbor Point Towers, located at 1500–1580 Wills Street, Baltimore, Maryland 21231 (Block 7419, Lots 1–6, Baltimore City), consisting of two (2) twenty-eight (28)-story residential towers containing six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, situated on an approximately 8.2-acre waterfront site in Baltimore's Harbor Point district, as more particularly described in Exhibit A attached hereto (the "Property").
B. Manager is Fairwater Real Estate Investment Trust, a Maryland real estate investment trust, with its principal office located at 7200 Pratt Street, Suite 1400, Baltimore, Maryland 21202. Manager is listed on the New York Stock Exchange under the ticker symbol "FWT" (Maryland SDAT ID: D19847321; EIN: 52-2198437). Manager, through its wholly owned subsidiary Fairwater HP Manager, LLC, a Delaware limited liability company (EIN: 52-2201889), serves as the Managing Member of Owner, holding a thirty percent (30%) membership interest in Owner.
C. The other member of Owner is Prescott HP Investor, LLC (EIN: 13-4603217), a Delaware limited liability company and wholly owned subsidiary of Prescott Capital Partners, LP (EIN: 13-4587612), a Delaware limited partnership, which holds a seventy percent (70%) membership interest in Owner as the non-managing member (the "Capital Partner").
D. Pursuant to the Amended and Restated Operating Agreement of Harbor Point Development JV, LLC dated January 12, 2026 (the "Operating Agreement"), by and between Fairwater HP Manager, LLC and Prescott HP Investor, LLC, Owner is required to engage Manager as the property manager for the Property upon Substantial Completion (as defined herein). This Agreement is the form of Property Management Agreement contemplated by, and attached as an exhibit to, the Operating Agreement.
E. Manager has substantial experience in the management, leasing, and operation of mixed-use and multifamily properties throughout the Mid-Atlantic region. Manager currently manages a portfolio of thirty-eight (38) mixed-use and multifamily properties comprising approximately $4.1 billion in total assets and generating approximately $612 million in annual revenue. Manager's experienced management team brings deep institutional expertise in the operation of Class A residential and mixed-use developments in urban submarkets comparable to the Property.
F. The Property was developed pursuant to Baltimore City Planned Unit Development approval (Ordinance No. 24-0417, approved June 14, 2024) and was constructed under a Guaranteed Maximum Price construction contract with Pinnacle General Contractors, Inc. The total project cost was Five Hundred Seventy-Six Million Dollars ($576,000,000), consisting of Fifty-Four Million Dollars ($54,000,000) in land acquisition costs, Four Hundred Thirty-Two Million Dollars ($432,000,000) in hard construction costs, and Ninety Million Dollars ($90,000,000) in soft costs (including development fees, financing costs, architectural and engineering fees, permitting, and other pre-development and development-related expenses).
G. Owner and Manager desire to enter into this Agreement on the terms and conditions set forth herein, effective upon Substantial Completion of the Property (currently estimated to occur in September 2028), to govern the management, operation, leasing, and maintenance of the Property.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Operating Agreement.
"Approved Annual Budget" means the annual operating budget and capital budget for the Property for each Fiscal Year, as prepared by Manager and approved by the members of Owner in accordance with the Operating Agreement. The Approved Annual Budget shall include projected revenues by category, projected operating expenses by line item, proposed capital expenditures, projected net operating income, and a narrative explanation of material assumptions. The Approved Annual Budget is subject to the budget variance threshold of five percent (5%) per line item, and any amendment to the Approved Annual Budget that would cause any line item to exceed such threshold requires the prior written consent of Prescott HP Investor, LLC in accordance with the Operating Agreement. Approval of the annual budget constitutes a Major Decision requiring Capital Partner consent.
"Capital Partner" means Prescott HP Investor, LLC, a Delaware limited liability company, the non-managing member of Owner holding a seventy percent (70%) membership interest, together with its successors and permitted assigns.
"Construction Loan" means the Three Hundred Thirty-Six Million Dollar ($336,000,000) construction loan facility provided by Meridian National Bank, N.A., or any successor, replacement, or refinancing thereof, secured by, among other things, the Property, as more particularly described in the loan documents governing such facility.
"Effective Date" means the date of Substantial Completion of the Property, as certified by the project architect of record and/or the construction engineer designated under the GMP Contract, currently estimated to occur in September 2028. Upon determination of the Effective Date, the Parties shall execute a written confirmation memorializing such date and attach it to this Agreement as a supplement.
"Effective Gross Revenue" or "EGR" means all gross revenue actually collected by Manager from the operation of the Property during the applicable period, including, without limitation: (a) residential rental income; (b) retail rental income; (c) parking revenue, including monthly parking fees, transient parking fees, and any revenue from parking access agreements; (d) late fees, application fees, and administrative fees; (e) laundry, vending, and other ancillary income; (f) reimbursements from tenants for operating expenses, real estate taxes, and insurance; (g) pet fees and pet rent; (h) storage unit rental income; (i) amenity fees and club membership fees, if any; and (j) any other income derived from the ownership, operation, or use of the Property; but excluding in all cases: (i) security deposits, except to the extent forfeited by tenants and applied to amounts owed under their respective leases; (ii) proceeds from the sale, financing, or refinancing of all or any portion of the Property; (iii) insurance proceeds, other than proceeds from business interruption insurance or loss of rents insurance; (iv) condemnation awards or payments in lieu thereof; and (v) capital contributions by the members of Owner.
"Fiscal Year" means the calendar year (January 1 through December 31), or such other fiscal year as Owner may hereafter adopt in accordance with the Operating Agreement, upon written notice to Manager.
"GMP Contract" means the Guaranteed Maximum Price construction contract between Owner and Pinnacle General Contractors, Inc. for the construction of the Property, including all amendments, change orders, and supplements thereto.
"Leasing Guidelines" means the written leasing parameters established by Owner and approved in accordance with the Operating Agreement, as the same may be amended, supplemented, or replaced from time to time, setting forth minimum rental rates by unit type and floor, maximum lease terms, permitted concession packages (including free rent periods, reduced security deposits, and move-in incentives), security deposit requirements, tenant creditworthiness and qualification criteria, standard lease form requirements, and such other parameters as Owner may establish. The initial Leasing Guidelines are attached hereto as Exhibit B.
"Major Decision" has the meaning ascribed to such term in the Operating Agreement, and includes, without limitation: (a) any single expenditure or commitment to expend in excess of Five Hundred Thousand Dollars ($500,000) that is not included in the Approved Annual Budget; (b) the settlement of any litigation, claim, or dispute involving the Property or Owner in excess of Two Hundred Fifty Thousand Dollars ($250,000); (c) the approval, amendment, or modification of the annual operating budget and capital budget; (d) the sale, transfer, refinancing, or encumbrance of the Property or any material portion thereof; (e) the filing of any voluntary bankruptcy petition on behalf of Owner; (f) the admission of additional members or the issuance of additional membership interests; and (g) such other enumerated matters as are set forth in the Operating Agreement as requiring the prior written consent of the Capital Partner.
"Management Fee" means the fee payable to Manager pursuant to Section 4.1, equal to three percent (3.0%) of Effective Gross Revenue.
"Manager" means Fairwater Real Estate Investment Trust, a Maryland real estate investment trust, together with its successors and permitted assigns.
"Operating Account" means the bank account or accounts established and maintained by Manager in the name of Owner, at a depository institution approved by Owner, for the deposit of all Property revenues and the disbursement of all Property operating expenses, debt service, reserves, the Management Fee, and distributions, as more particularly described in Article 6.
"Operating Agreement" means the Amended and Restated Operating Agreement of Harbor Point Development JV, LLC dated January 12, 2026, by and between Fairwater HP Manager, LLC and Prescott HP Investor, LLC, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Owner" means Harbor Point Development JV, LLC, a Delaware limited liability company, together with its successors and permitted assigns.
"Property" means Harbor Point Towers, located at 1500–1580 Wills Street, Baltimore, Maryland 21231 (Block 7419, Lots 1–6, Baltimore City), including two (2) twenty-eight (28)-story residential towers containing six hundred ten (610) residential units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, together with all improvements, structures, fixtures, equipment, systems, common areas, amenity spaces, parking facilities (including structured and surface parking), landscaping, signage, and all other appurtenances thereon, all as more particularly described in Exhibit A attached hereto.
"Stabilization" means the date on which the Property first achieves and maintains a physical occupancy rate of ninety-three percent (93%) or greater (calculated based on the total number of residential units leased and occupied divided by the total number of residential units at the Property) for ninety (90) consecutive calendar days. For purposes of this definition, a unit shall be deemed "occupied" if it is subject to a lease that has commenced and the tenant has taken physical possession of the unit, and the tenant is not more than sixty (60) days delinquent in the payment of rent.
"Substantial Completion" has the meaning ascribed to such term in the GMP Contract with Pinnacle General Contractors, Inc., and generally means the date on which the work under the GMP Contract has been completed to the point where Owner can occupy and utilize the Property for its intended purpose, all required certificates of occupancy have been issued by Baltimore City, and all punch-list items have been identified in writing, subject to final completion thereof within the time periods specified in the GMP Contract.
"Term" has the meaning set forth in Article 2.
Section 1.2 — Interpretation and Cross-References
(a) All capitalized terms used but not specifically defined in this Agreement shall have the meanings ascribed to such terms in the Operating Agreement.
(b) Unless the context otherwise requires, (i) words importing the singular include the plural and vice versa, (ii) words importing a gender include each gender, (iii) references to "including" or "includes" shall mean "including, without limitation" or "includes, without limitation," (iv) references to "herein," "hereof," "hereunder," and similar terms refer to this Agreement as a whole and not to any particular section or provision, and (v) references to "Articles," "Sections," "Exhibits," and "Schedules" refer to Articles, Sections, Exhibits, and Schedules of this Agreement unless otherwise specified.
(c) This Agreement shall be interpreted and construed in accordance with the laws of the State of Maryland, without regard to conflict-of-laws principles that would require the application of the laws of any other jurisdiction.
(d) The headings and captions used in this Agreement are for convenience of reference only and shall not affect the interpretation or construction of this Agreement.
(e) Each exhibit and schedule attached hereto is incorporated herein by reference and made a part of this Agreement.
(f) In the event of any conflict between a provision of this Agreement and a provision of the Operating Agreement, the Operating Agreement shall control, except as specifically provided in Section 15.8.
ARTICLE 2
TERM AND TERMINATION
Section 2.1 — Initial Term
The term of this Agreement (the "Term") shall commence on the Effective Date and, unless sooner terminated in accordance with the provisions hereof, shall continue for a period of three (3) years from the Effective Date (the "Initial Term"). The estimated commencement date of the Initial Term is September 2028, subject to the actual date of Substantial Completion.
Section 2.2 — Renewal Terms
Upon the expiration of the Initial Term, this Agreement shall automatically renew for successive periods of one (1) year each (each, a "Renewal Term"), unless either Party provides the other Party with written notice of non-renewal at least ninety (90) days prior to the expiration of the then-current Term (whether the Initial Term or any Renewal Term). The Initial Term and any Renewal Terms are collectively referred to herein as the "Term." For the avoidance of doubt, any termination or non-renewal of this Agreement shall be subject to the provisions of Sections 2.3 through 2.7 and shall not affect any rights or obligations that have accrued prior to such termination or non-renewal.
Section 2.3 — Termination by Owner
Owner may terminate this Agreement at any time during the Term under any of the following circumstances:
(a) Termination Without Cause. Owner may terminate this Agreement at any time, without cause, upon thirty (30) days' prior written notice to Manager. Any termination without cause by Owner shall be subject to the payment of the Termination Fee, if applicable, as set forth in Section 2.6.
(b) Termination for Material Default. Owner may terminate this Agreement immediately upon written notice to Manager if Manager commits a material default in the performance of its obligations hereunder and such default remains uncured for a period of thirty (30) days after Owner delivers written notice to Manager specifying such default in reasonable detail. The thirty (30)-day cure period set forth in this Section 2.3(b) is consistent with, and intended to correspond to, the default cure period applicable to the Managing Member under the Operating Agreement. If the nature of such default is such that it cannot reasonably be cured within thirty (30) days, Manager shall not be deemed in default hereunder if Manager commences cure within such thirty (30)-day period and thereafter diligently and continuously pursues such cure to completion, provided that in no event shall such extended cure period exceed ninety (90) days from the date of Owner's original notice.
(c) Termination for Fraud, Willful Misconduct, or Gross Negligence. Owner may terminate this Agreement immediately upon written notice to Manager if Manager, or any officer, director, employee, or agent of Manager acting within the scope of his or her employment or agency, commits fraud, willful misconduct, or gross negligence in connection with the management or operation of the Property. No cure period shall be applicable to any termination under this Section 2.3(c).
(d) Termination Upon Bankruptcy or Insolvency. Owner may terminate this Agreement immediately upon written notice to Manager if: (i) Manager files a voluntary petition in bankruptcy or is adjudicated bankrupt or insolvent; (ii) Manager files any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future federal, state, or other law or regulation relating to bankruptcy, insolvency, or other relief for debtors; (iii) Manager seeks or consents to or acquiesces in the appointment of any trustee, receiver, custodian, conservator, or liquidator of Manager or of all or any substantial part of its properties or assets; (iv) Manager makes a general assignment for the benefit of creditors; or (v) an order for relief is entered against Manager in any case under the United States Bankruptcy Code.
(e) Termination Upon Removal of Managing Member. Owner may terminate this Agreement immediately upon written notice to Manager if Fairwater HP Manager, LLC is removed as Managing Member of Owner pursuant to the Operating Agreement, whether such removal is for cause or without cause. The consequences of such removal with respect to accrued promote and other economic rights of Fairwater HP Manager, LLC shall be governed exclusively by the Operating Agreement and not by this Agreement.
Section 2.4 — Termination by Manager
Manager may terminate this Agreement at any time during the Term under any of the following circumstances:
(a) Termination Without Cause. Manager may terminate this Agreement at any time, without cause, upon ninety (90) days' prior written notice to Owner.
(b) Termination for Owner's Failure to Fund. Manager may terminate this Agreement immediately upon written notice to Owner if Owner fails to fund the Operating Account with amounts sufficient to pay Property operating expenses or fails to reimburse Manager for Property expenses as required under this Agreement, and such failure continues for a period of thirty (30) days after Manager delivers written notice to Owner specifying such failure in reasonable detail. For purposes of this Section 2.4(b), "failure to fund" shall mean a deficiency in the Operating Account that results in Manager's inability to pay budgeted operating expenses, debt service, or other obligations of Owner in the ordinary course, after Manager has deposited all collected Property revenues into the Operating Account.
Section 2.5 — Effect of Termination
Upon termination or expiration of this Agreement for any reason, the following provisions shall apply:
(a) Delivery of Records. Manager shall promptly deliver to Owner or Owner's designee all books of account, records, files, correspondence, tenant files, lease files, keys, access cards, security codes, passwords, and all other documents, instruments, and materials in Manager's possession or control relating to the Property and its management. Such delivery shall be completed within thirty (30) days after the effective date of termination, or such shorter period as Owner may reasonably require.
(b) Assignment of Contracts. Manager shall assign, or cause to be assigned, to Owner or Owner's designee all service contracts, vendor agreements, equipment leases, and other contracts entered into by Manager on behalf of Owner in connection with the Property, as directed by Owner. Owner shall have the right, in its sole discretion, to determine which contracts shall be assigned and which shall be terminated.
(c) Final Accounting. Manager shall render a final accounting to Owner within sixty (60) days after the effective date of termination, setting forth in reasonable detail all revenues collected, expenses paid, outstanding obligations, security deposits held, and all other matters necessary for a complete accounting of Manager's stewardship of the Property during the Term.
(d) Transfer of Funds. Manager shall transfer to Owner or Owner's designee all funds held in the Operating Account and any reserve accounts, security deposit accounts, and other accounts maintained by Manager in connection with the Property, within five (5) business days after the effective date of termination (or, with respect to any amounts that are the subject of reconciliation, within five (5) business days after completion of such reconciliation).
(e) Transition Cooperation. Manager shall cooperate with Owner and any successor property manager in the orderly transition of management responsibilities for a period of ninety (90) days following the effective date of termination (or such shorter period as Owner may determine). Such cooperation shall include, without limitation, introductions to tenants, vendors, and service providers; provision of all operating manuals, maintenance schedules, and warranty information; participation in transition meetings as reasonably requested by Owner; and availability of Manager's key personnel to answer questions and provide guidance regarding ongoing Property operations. Manager shall be compensated for its reasonable out-of-pocket costs incurred during the transition period, but shall not be entitled to any additional management fee during such period beyond the Management Fee payable through the effective date of termination.
Section 2.6 — Termination Fee
In the event that Owner terminates this Agreement without cause pursuant to Section 2.3(a) (other than in connection with the removal of Fairwater HP Manager, LLC as Managing Member pursuant to the Operating Agreement), Owner shall pay to Manager a termination fee in an amount equal to the Management Fee paid or payable with respect to the six (6) calendar months immediately preceding the effective date of such termination (the "Termination Fee"). The Termination Fee shall be payable within thirty (30) days after the effective date of termination. No Termination Fee shall be payable upon: (i) termination for cause pursuant to Section 2.3(b) or 2.3(c); (ii) termination upon Manager's bankruptcy or insolvency pursuant to Section 2.3(d); (iii) termination upon removal of Fairwater HP Manager, LLC as Managing Member pursuant to Section 2.3(e) (in which case the economic consequences of such removal shall be governed by the promote forfeiture and retention provisions of the Operating Agreement); (iv) termination by Manager pursuant to Section 2.4; or (v) non-renewal of the Agreement pursuant to Section 2.2. For the avoidance of doubt, the Termination Fee is the sole and exclusive remedy of Manager in the event of a termination without cause by Owner under Section 2.3(a), and Manager hereby waives any claim for lost profits, lost management fees, or other damages arising from such termination, except to the extent of accrued and unpaid Management Fees and reimbursable expenses through the effective date of termination.
Section 2.7 — Survival
The following provisions of this Agreement shall survive the expiration or termination of this Agreement for any reason: (a) the indemnification obligations set forth in Article 10; (b) the confidentiality obligations set forth in Article 13; (c) the final accounting obligations set forth in Section 2.5(c); (d) the transition cooperation obligations set forth in Section 2.5(e); (e) the Termination Fee obligations set forth in Section 2.6; (f) the dispute resolution provisions set forth in Article 14; and (g) any other provisions of this Agreement that, by their nature, are intended to survive termination.
ARTICLE 3
DUTIES AND AUTHORITY OF MANAGER
Section 3.1 — General Management Duties
Manager shall manage, operate, and maintain the Property in a first-class manner consistent with the standards and practices customarily observed at comparable Class A mixed-use multifamily properties in the Baltimore metropolitan area. Manager shall devote such time, attention, and resources as are reasonably necessary to ensure the efficient and effective operation of the Property, to maximize Effective Gross Revenue, and to minimize operating costs, in each case subject to and in accordance with the Approved Annual Budget, the Leasing Guidelines, this Agreement, and the Operating Agreement. Manager shall at all times act in the best interests of Owner and shall discharge its duties with the loyalty, care, and diligence required by the standard of care set forth in Section 3.4.
Manager shall use commercially reasonable efforts to achieve Stabilization of the Property as promptly as practicable following the Effective Date and, thereafter, to maintain occupancy at or above the Stabilization threshold. Manager shall implement and maintain marketing and leasing strategies designed to attract and retain high-quality residential and retail tenants, enhance the reputation of the Property in the Baltimore market, and preserve and enhance the long-term value of the Property for the benefit of Owner and its members.
Section 3.2 — Specific Management Responsibilities
Without limiting the generality of Section 3.1, Manager shall have the following specific management responsibilities:
Section 3.2.1 — Leasing and Marketing. (a) Manager shall develop, implement, and manage comprehensive marketing and leasing programs for the residential units and retail spaces at the Property, including digital marketing, social media campaigns, broker outreach, on-site leasing office operations, and such other marketing activities as Manager deems appropriate and as are consistent with the Approved Annual Budget.
(b) Manager shall market and lease all residential units in accordance with the Leasing Guidelines, including negotiating lease terms, processing tenant applications, conducting credit and background checks, and executing residential leases on behalf of Owner using the standard lease form approved by Owner.
(c) Manager shall market and lease the ground-floor retail spaces in accordance with the Leasing Guidelines and the retail leasing strategy established by Owner. Manager shall coordinate retail leasing activities with Owner's designated leasing representative, as applicable, and shall present all proposed retail lease transactions to Owner for review and approval prior to execution.
(d) Manager shall administer all lease renewals, including preparing renewal offers, negotiating renewal terms, and executing renewal leases, all in accordance with the Leasing Guidelines and the Approved Annual Budget.
(e) Manager shall monitor market conditions, comparable property rental rates, and competitive developments in the Baltimore metropolitan area, and shall report to Owner on a quarterly basis regarding market trends and their potential impact on the Property's leasing performance.
(f) Notwithstanding the foregoing, retail leases with terms greater than ten (10) years, tenant improvement allowances exceeding Seventy-Five Thousand Dollars ($75,000), or exclusive use provisions that could materially restrict the use of other retail spaces at the Property, shall require the prior written approval of Owner and, to the extent such leases constitute Major Decisions, the prior written consent of the Capital Partner under the Operating Agreement.
Section 3.2.2 — Maintenance and Repairs. (a) Manager shall perform, or cause to be performed, all routine maintenance, preventive maintenance, repairs, janitorial services, landscaping, snow removal, pest control, and common area upkeep necessary to maintain the Property in first-class condition and in compliance with all applicable codes, laws, and regulations.
(b) Manager shall develop and implement a preventive maintenance program for all building systems, including HVAC, plumbing, electrical, elevator, fire and life safety, security, and parking systems, designed to maximize the useful life of such systems and minimize unexpected repair costs.
(c) Manager shall oversee all capital improvements, replacements, and major repair projects as approved in the Approved Annual Budget or as specifically authorized in writing by Owner. Manager shall obtain competitive bids for all capital projects exceeding Twenty-Five Thousand Dollars ($25,000) and shall present such bids to Owner for review and selection.
(d) Emergency Repairs. Manager is authorized to incur expenses of up to Seventy-Five Thousand Dollars ($75,000) per occurrence, without prior approval of Owner, for emergency repairs or expenditures that are immediately necessary to protect the health, safety, or welfare of tenants, guests, or other persons at the Property, or to prevent imminent material damage to the Property. Manager shall notify Owner of any such emergency expenditure as promptly as practicable, and in no event later than twenty-four (24) hours after incurring or committing to such expenditure. Emergency expenditures exceeding Seventy-Five Thousand Dollars ($75,000) per occurrence require the prior approval of Owner (and, where such expenditure exceeds Five Hundred Thousand Dollars ($500,000) and is not in the Approved Annual Budget, such expenditure shall constitute a Major Decision requiring Capital Partner consent under the Operating Agreement).
Section 3.2.3 — Personnel. (a) Manager shall hire, train, supervise, compensate, provide benefits to, and, when necessary, discipline or terminate all on-site property management staff required for the efficient operation of the Property, including a senior property manager, assistant property manager(s), leasing agent(s), maintenance technicians, concierge staff, and such other personnel as Manager deems appropriate for the size, quality, and operational requirements of the Property.
(b) All on-site management and operational employees shall be employees of Manager (or, at Manager's election, employees of a wholly owned subsidiary of Manager), and not employees of Owner. Manager shall be solely responsible for all employment-related obligations with respect to such employees, including, without limitation, compensation, withholding and payment of all applicable federal, state, and local payroll taxes, provision of employee benefits, compliance with all employment laws and regulations (including, without limitation, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Fair Labor Standards Act, the Family and Medical Leave Act, and applicable Maryland and Baltimore City employment laws), and the procurement of workers' compensation insurance coverage as required by law.
(c) Manager's corporate overhead costs, home-office personnel costs, and general administrative expenses of Manager's central office operations are included in the Management Fee and shall not be separately reimbursable by Owner. For purposes of this Agreement, "corporate overhead and home-office personnel costs" include the salaries, benefits, and related costs of Manager's executive officers, regional managers, accounting staff (other than accounting personnel dedicated full-time to the Property), legal staff, human resources personnel, information technology support, and other personnel who are not assigned to and working exclusively at the Property.
(d) The initial on-site staffing plan, including proposed positions, position descriptions, and salary ranges, is set forth in Exhibit G attached hereto. Manager shall update the staffing plan annually as part of the Proposed Budget process.
Section 3.2.4 — Tenant Relations. (a) Manager shall respond promptly and professionally to all tenant inquiries, complaints, maintenance requests, and service requests. Manager shall maintain a work order system and shall track response times and completion rates for all service requests. Manager shall use commercially reasonable efforts to respond to routine maintenance requests within twenty-four (24) hours and to address emergency maintenance issues immediately.
(b) Manager shall enforce all lease terms and provisions, including, without limitation, rules and regulations governing the use of common areas, amenities, parking facilities, and residential and retail spaces. Manager shall collect rents and all other charges due under the leases and shall pursue delinquent accounts in a timely manner, including the issuance of late notices, demand letters, and, where appropriate, the initiation of eviction or collection proceedings.
(c) Manager shall coordinate and manage all tenant move-in and move-out activities, including scheduling, inspection of units, assessment of damages, and processing of security deposit refunds or forfeitures in accordance with applicable Maryland law (including Maryland Code, Real Property Article, Section 8-203 et seq.).
(d) Manager shall develop and implement a tenant retention program designed to foster positive tenant relations, enhance tenant satisfaction, and maximize lease renewal rates.
Section 3.2.5 — Vendor and Contractor Management. (a) Manager shall solicit competitive bids from qualified vendors and contractors for all material service contracts relating to the Property, including, without limitation, contracts for security services, janitorial services, landscaping and grounds maintenance, elevator maintenance, HVAC maintenance, pest control, trash removal, amenity management, and utilities.
(b) Manager shall negotiate, execute, and administer all service contracts and vendor agreements on behalf of Owner, in each case in accordance with the Approved Annual Budget. Manager shall use commercially reasonable efforts to obtain favorable terms, pricing, and service levels for the benefit of Owner.
(c) Any single contract, purchase order, or expenditure commitment exceeding Five Hundred Thousand Dollars ($500,000) that is not included in the Approved Annual Budget shall constitute a Major Decision requiring the prior written consent of the Capital Partner under the Operating Agreement. Manager shall not enter into any such contract or commitment without obtaining such consent.
(d) All service contracts and vendor agreements entered into by Manager in connection with the management of the Property shall be entered into in the name of Owner and shall be the property of Owner. Manager shall include in all such contracts a provision permitting assignment to Owner or Owner's designee without the consent of the vendor or contractor.
Section 3.2.6 — Compliance and Regulatory. (a) Manager shall ensure that the Property is operated and maintained in compliance with all applicable federal, state, and local laws, codes, ordinances, and regulations, including, without limitation, the Baltimore City Building Code, Fire Code, and Housing Code, applicable zoning laws and regulations, the conditions of the Planned Unit Development approval (Ordinance No. 24-0417, approved June 14, 2024), the Americans with Disabilities Act, the Fair Housing Act, the Maryland Consumer Protection Act, the Maryland Lead Paint Law, the Maryland Mold Act, all applicable environmental laws and regulations, and all other governmental requirements applicable to the ownership, operation, leasing, and maintenance of the Property.
(b) Manager shall obtain, maintain, and renew all governmental licenses, permits, and registrations required for the lawful operation of the Property, including, without limitation, rental dwelling licenses, business licenses, elevator permits, fire safety permits, and food service permits (to the extent applicable to retail tenants).
(c) Manager shall comply with all applicable fair housing laws and shall ensure that all marketing, leasing, and tenant selection activities are conducted in a manner that does not discriminate on the basis of race, color, national origin, religion, sex, familial status, disability, sexual orientation, gender identity, marital status, age, ancestry, or any other characteristic protected by applicable federal, state, or local law.
(d) Manager shall promptly notify Owner of any notice of violation, citation, summons, complaint, or enforcement action received from any governmental authority with respect to the Property, and shall take all reasonable steps to cure any such violation within the applicable cure period.
Section 3.2.7 — Insurance Administration. (a) Manager shall procure and maintain, or cause to be procured and maintained, at Owner's expense and as a Property operating expense, all insurance coverages required by Article 9 of this Agreement, the Operating Agreement, and any applicable loan documents, including the loan documents governing the Construction Loan from Meridian National Bank, N.A.
(b) Manager shall administer all insurance policies for the Property, including processing premium payments from the Operating Account, reviewing coverage and policy terms, coordinating with Greystone Mutual Insurance Company and other insurance carriers, maintaining certificates of insurance from all contractors and vendors performing work at the Property, and ensuring continuous, uninterrupted coverage throughout the Term.
(c) Manager shall promptly report all claims, losses, and potential claims to the appropriate insurance carriers and shall cooperate in the investigation and adjustment of all insurance claims. Manager shall not settle any insurance claim in excess of the deductible amount without the prior written consent of Owner.
Section 3.2.8 — REIT Compliance Cooperation. (a) Manager acknowledges and agrees that Fairwater Real Estate Investment Trust is a publicly traded real estate investment trust listed on the New York Stock Exchange under the ticker symbol "FWT" and is required to comply with the provisions of Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), in order to maintain its qualification as a REIT. Manager shall operate and manage the Property in a manner consistent with Fairwater's REIT qualification requirements and shall not take any action, or fail to take any action, that would cause the income of the JV from the Property to fail the REIT gross income tests set forth in Sections 856(c)(2) and 856(c)(3) of the Code.
(b) Without limiting the generality of the foregoing, all services provided by Manager in connection with the management and operation of the Property must qualify as services "customarily furnished in connection with the rental of space for occupancy only" within the meaning of Treasury Regulation Section 1.512(b)-1(c)(5) and applicable IRS guidance. Manager shall not provide, or arrange for the provision of, any non-customary services to tenants of the Property that would generate non-qualifying income for REIT purposes without the prior written approval of Owner. In the event that Manager identifies a service or income stream that could potentially jeopardize Fairwater's REIT status, Manager shall promptly notify Owner and shall refrain from providing such service or generating such income until Owner has reviewed and approved the proposed activity.
(c) Manager shall cooperate with Fairwater's right under the Operating Agreement and the REIT Compliance Side Letter dated as of the date of the Operating Agreement to force distributions of at least one hundred percent (100%) of REIT taxable income attributable to the JV interests, and shall take all actions reasonably necessary to facilitate such distributions, including preparing and delivering distribution calculations on a timely basis.
(d) Manager shall cooperate with Owner and Fairwater's tax counsel in providing such information and certifications as may be reasonably necessary to enable Fairwater to comply with its REIT reporting obligations and to confirm compliance with the REIT gross income tests, asset tests, and distribution requirements.
Section 3.3 — Limitations on Manager's Authority
Notwithstanding any other provision of this Agreement, Manager shall not, without the prior written consent of Owner (and, where applicable, the prior written consent of the Capital Partner as required under the Operating Agreement):
(a) Expend or commit to expenditures that would cause any line item of the Approved Annual Budget to be exceeded by more than five percent (5%) of such budgeted line item amount;
(b) Make, or commit to make, any single unbudgeted expenditure in excess of Five Hundred Thousand Dollars ($500,000);
(c) Sell, convey, transfer, exchange, encumber, or mortgage the Property, or any part thereof, or any interest therein;
(d) Borrow funds on behalf of Owner, or pledge, hypothecate, or grant any security interest in any Property assets or revenues, or guaranty any obligation of any other person or entity;
(e) Settle, compromise, or consent to the entry of any judgment in any litigation, claim, arbitration, or dispute involving the Property or Owner in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000), or in any amount if such settlement would impose non-monetary obligations on Owner or the Property;
(f) Modify, amend, or terminate any existing lease, or enter into any new lease, that does not conform to the Leasing Guidelines, or waive or release any material right of Owner under any lease;
(g) Make, or consent to, any zoning change, rezoning application, variance request, or modification of the PUD approval (Ordinance No. 24-0417);
(h) File any voluntary petition in bankruptcy on behalf of Owner, or consent to the filing of any involuntary petition in bankruptcy against Owner;
(i) Engage in any transaction with Manager or any affiliate of Manager, except on arm's-length terms and as expressly permitted by this Agreement or the Operating Agreement; or
(j) Take any action that would constitute a Major Decision under the Operating Agreement without first obtaining the required consents.
Section 3.4 — Standard of Care
Manager shall perform all of its duties and obligations under this Agreement with the degree of care, skill, and diligence customarily exercised by experienced, professional property managers managing comparable Class A mixed-use multifamily properties in the Baltimore metropolitan market. Manager's performance shall be measured against the standards of care and competence expected of an institutional property management firm with substantial experience in the management of large-scale, mixed-use residential and retail developments in major metropolitan areas. Manager shall maintain at all times sufficient qualified personnel, financial resources, technology systems, and operational infrastructure to discharge its obligations hereunder in a professional and competent manner.
ARTICLE 4
COMPENSATION
Section 4.1 — Management Fee
(a) As compensation for the management services provided by Manager under this Agreement, Owner shall pay to Manager a management fee equal to three percent (3.0%) of Effective Gross Revenue (the "Management Fee").
(b) The Management Fee shall be calculated monthly based upon the Effective Gross Revenue actually collected by Manager during the applicable calendar month. For the avoidance of doubt, the Management Fee shall be calculated only on amounts actually received and deposited into the Operating Account during such month, and not on amounts billed but uncollected.
(c) The Management Fee shall be payable monthly, on or before the fifteenth (15th) day of the calendar month immediately following the month for which the Management Fee has been earned. Manager is authorized to pay the Management Fee from the Operating Account; provided, however, that Manager shall not pay the Management Fee if such payment would result in insufficient funds in the Operating Account to pay current operating expenses and debt service obligations of the Property.
(d) In the event that this Agreement is terminated on a date other than the last day of a calendar month, the Management Fee for the final month of the Term shall be prorated based on the number of days during such month that this Agreement was in effect divided by the total number of days in such month.
Section 4.2 — Commencement of Fee
(a) The Management Fee shall commence accruing on the Effective Date (i.e., the date of Substantial Completion of the Property).
(b) During the lease-up period from the Effective Date through the date of Stabilization, the Management Fee shall be calculated on the actual Effective Gross Revenue collected during each calendar month. No minimum fee guarantee or supplemental management fee shall be payable during the pre-Stabilization lease-up period, and Manager acknowledges that Effective Gross Revenue during such period may be significantly below projected stabilized levels.
(c) In the event that the Parties negotiate and agree upon a minimum management fee during the pre-Stabilization lease-up period, such minimum fee shall be set forth in a written amendment to this Agreement, executed by both Parties and, if required under the Operating Agreement, approved by the Capital Partner.
Section 4.3 — Leasing Commissions
(a) Residential Leasing. No separate leasing commission shall be payable to Manager for the leasing, renewal, or extension of residential leases at the Property. All residential leasing activities performed by Manager's on-site leasing staff are deemed included in the Management Fee.
(b) Retail Leasing. Manager shall be entitled to a leasing commission for new retail leases, renewals, and extensions of retail leases at the Property, as follows: (i) for new retail leases, a commission equal to four percent (4.0%) of the aggregate base rent payable over the initial lease term; (ii) for retail lease renewals and extensions, a commission equal to two percent (2.0%) of the aggregate base rent payable over the renewal or extension term. If Owner engages a third-party retail leasing broker, the retail leasing commission payable to such broker shall be a Property operating expense paid from the Operating Account, and Manager's retail leasing commission set forth in this Section 4.3(b) shall be reduced by the amount of any commission paid to such third-party broker with respect to the same transaction.
(c) Leasing commissions shall be payable upon the later of (i) lease execution and (ii) the tenant's commencement of rent payments under the applicable lease.
Section 4.4 — Construction Management / Capital Project Oversight Fee
(a) For any capital improvement project, major repair project, or renovation project approved in the Approved Annual Budget or otherwise specifically authorized in writing by Owner, Manager shall be entitled to a construction/capital oversight fee equal to five percent (5.0%) of the hard costs of such project (the "Capital Oversight Fee"), in consideration of Manager's services in overseeing, coordinating, and managing such project on behalf of Owner.
(b) The Capital Oversight Fee shall be payable monthly in arrears, based on hard costs incurred during the applicable month, as verified by Manager's progress reports and contractor payment applications.
(c) For the avoidance of doubt, the development management fee of three and one-half percent (3.5%) of hard construction costs (totaling Fifteen Million One Hundred Twenty Thousand Dollars ($15,120,000)) payable to Fairwater under the Development Management Agreement applies exclusively to the initial construction phase of the Property and is entirely separate from, and in addition to, the Capital Oversight Fee payable under this Section 4.4, which applies only to post-completion capital projects.
Section 4.5 — Reimbursable Expenses
(a) Owner shall reimburse Manager for all direct, out-of-pocket costs and expenses reasonably incurred by Manager in connection with the management and operation of the Property, including, without limitation:
(i) Salaries, wages, payroll taxes, and employee benefits (including health insurance, retirement benefits, and workers' compensation insurance premiums) for all on-site property management personnel;
(ii) Office supplies, furniture, equipment, computers, software, telecommunications systems, and technology for the Property management office located at the Property;
(iii) Marketing, advertising, and promotional costs, including digital advertising, print advertising, signage, website development and maintenance, photography, videography, and promotional events;
(iv) Legal fees and expenses incurred at Owner's direction or with Owner's approval in connection with lease enforcement, eviction proceedings, tenant disputes, vendor disputes, and other Property-related legal matters;
(v) Travel expenses incurred by Manager's personnel for Property-related business, provided such travel is pre-approved by Owner;
(vi) Costs of training programs for on-site personnel, including fair housing training, safety training, and professional development;
(vii) Postage, courier, and delivery costs; and
(viii) Such other direct, out-of-pocket costs and expenses as are included in the Approved Annual Budget or otherwise approved in advance by Owner.
(b) All reimbursable expenses must be included as line items in the Approved Annual Budget or otherwise approved in writing by Owner prior to being incurred. Manager shall maintain detailed records and receipts for all reimbursable expenses and shall include such expenses in the monthly financial reporting package delivered to Owner.
(c) Manager's corporate overhead costs, home-office personnel costs, and general administrative expenses (as described in Section 3.2.3(c)) are not reimbursable by Owner and are deemed included in the Management Fee.
Section 4.6 — Disposition Fee
Upon any sale, transfer, or other disposition of the Property (including any sale of one hundred percent (100%) of the membership interests in Owner), a disposition fee equal to one percent (1.0%) of the gross sale price shall be payable to Fairwater Real Estate Investment Trust (or its designee) in accordance with the terms and conditions of the Operating Agreement. Such disposition fee is established and governed by the Operating Agreement and is not separately established by this Agreement. This Section 4.6 is included solely for informational and cross-reference purposes.
Section 4.7 — No Other Compensation
Except as expressly set forth in this Article 4 or in the Operating Agreement, Manager shall not be entitled to any additional compensation, fees, commissions, rebates, discounts, or other remuneration in connection with the management, operation, leasing, or maintenance of the Property. Manager shall not receive or retain any rebates, discounts, kickbacks, or other payments from any vendor, contractor, supplier, or service provider in connection with the Property without the prior written approval of Owner and full disclosure to the Capital Partner.
ARTICLE 5
BUDGETS AND FINANCIAL REPORTING
Section 5.1 — Annual Budget Preparation
(a) Not later than sixty (60) days prior to the commencement of each Fiscal Year (i.e., by November 1 of the preceding calendar year), Manager shall prepare and submit to Owner a proposed annual operating budget and capital budget for the Property for the ensuing Fiscal Year (the "Proposed Budget").
(b) The Proposed Budget shall be prepared in the format set forth in Exhibit C attached hereto and shall include, at a minimum:
(i) Projected revenues by category, including residential rental income (broken down by unit type and floor), retail rental income (by tenant), parking revenue, ancillary income, and other income;
(ii) Projected operating expenses by line item, including, without limitation, on-site personnel costs, utilities, insurance premiums, real estate taxes, repairs and maintenance, marketing and advertising, management fees, administrative expenses, professional fees, and all other operating costs;
(iii) Proposed capital expenditures, including a description of each proposed project, estimated cost, timing, and justification;
(iv) Projected net operating income (NOI);
(v) Projected debt service payments;
(vi) Projected cash flow before and after debt service and distributions;
(vii) A narrative explanation of material assumptions, including projected occupancy rates, rental rate assumptions, market comparables, and utility cost projections;
(viii) A variance analysis comparing the Proposed Budget to the current year's Approved Annual Budget and to actual year-to-date results; and
(ix) A three-year capital improvement plan, updated annually.
(c) The Proposed Budget shall be subject to review and approval by the members of Owner in accordance with the Operating Agreement. Approval of the annual operating budget and capital budget is a Major Decision requiring the prior written consent of the Capital Partner. Manager shall cooperate with Owner and the Capital Partner in revising the Proposed Budget as may be necessary to obtain approval.
(d) If the Proposed Budget for any Fiscal Year has not been approved by the commencement of such Fiscal Year, Manager shall operate the Property in accordance with the prior year's Approved Annual Budget (adjusted for non-discretionary increases in taxes, insurance, utilities, and contractual obligations), until such time as the new Approved Annual Budget is adopted.
Section 5.2 — Budget Compliance
(a) Manager shall manage and operate the Property in strict accordance with the Approved Annual Budget. Manager shall use commercially reasonable efforts to achieve the revenue targets set forth in the Approved Annual Budget and to control operating expenses within the budgeted amounts.
(b) Manager shall not exceed any individual line item of the Approved Annual Budget by more than five percent (5%) without the prior written consent of Owner. In the event that any line item variance exceeds five percent (5%), or is reasonably expected to exceed five percent (5%), Manager shall promptly notify Owner and request approval for such variance. To the extent that such variance amendment requires the consent of the Capital Partner under the Operating Agreement, Manager shall assist Owner in preparing the necessary information and supporting documentation for such consent request.
(c) Any single unbudgeted expenditure in excess of Five Hundred Thousand Dollars ($500,000) constitutes a Major Decision requiring the prior written consent of the Capital Partner under the Operating Agreement, and Manager shall not incur or commit to any such expenditure without obtaining such consent.
(d) Manager shall provide Owner with a budget variance report as part of each monthly financial reporting package, highlighting any actual or anticipated variances from the Approved Annual Budget and providing explanations for such variances.
Section 5.3 — Monthly Financial Reports
Manager shall deliver to Owner, within twenty (20) days after the end of each calendar month, a comprehensive monthly financial reporting package in the format set forth in Exhibit D attached hereto, which shall include the following:
(a) Income Statement. A statement of income and expenses for the calendar month and year-to-date, compared to the Approved Annual Budget, with dollar and percentage variances and written explanations for all material variances (defined as variances exceeding five percent (5%) of the budgeted amount for any line item);
(b) Balance Sheet. A balance sheet for the Property as of the end of the calendar month;
(c) Cash Flow Statement. A statement of cash flows for the calendar month and year-to-date, including a reconciliation of beginning and ending cash balances in the Operating Account and all reserve accounts;
(d) Rent Roll. A detailed rent roll showing, for each residential unit and retail space: unit/space number, tenant name, lease commencement and expiration dates, current monthly rent, any concessions or abatements in effect, security deposit amount, vacancy status, and delinquency status (number of days past due and amount outstanding);
(e) Accounts Receivable Aging Report. An aging report for all accounts receivable, categorized by current, 30 days past due, 60 days past due, 90 days past due, and over 90 days past due, with a narrative summary of collection efforts and expected resolution for all accounts more than 60 days past due;
(f) Accounts Payable Summary. A summary of all accounts payable, including vendor name, invoice amount, due date, and payment status;
(g) Capital Expenditure Report. A report of all capital expenditures incurred during the month, compared to the approved capital budget, including project descriptions, costs incurred to date, estimated costs to complete, and project status;