PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT — FOR INTERNAL USE ONLY
CALDERWOOD & HARKNESS LLP 2001 M Street NW, Suite 1200 Washington, DC 20036
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for internal use by Calderwood & Harkness LLP personnel working on this engagement. This memorandum should not be disclosed to any third party without the prior written consent of the responsible partner. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
TO: Engagement File — Ironhaven Data Centers LLC / Loudoun Edge Facility Financing
FROM: Rafael Dominguez, Lead Associate, Real Estate Practice Group Angela Fontaine, Responsible Partner, Real Estate Practice Group
DATE: March 29, 2024
RE: Closing Memorandum — $45,000,000 Construction-to-Permanent Loan Facility; Ironhaven Loudoun Edge LLC (Borrower) and Pinnacle Federal Savings Bank (Lender); Loudoun Edge Facility, 44350 Prentice Drive, Ashburn, Loudoun County, Virginia 20147
MATTER NO.: 1043-00003
BILLING PARTNER: Douglas Fairchild
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP ("C&H" or the "Firm") represented Ironhaven Data Centers LLC ("IHDC") and its wholly owned single-purpose subsidiary, Ironhaven Loudoun Edge LLC (the "Borrower" or "Loudoun Edge SPE"), in connection with a $45,000,000 construction-to-permanent loan facility (the "Loan") from Pinnacle Federal Savings Bank ("Pinnacle" or the "Lender") for the development of the Loudoun Edge Facility, a purpose-built 4.5 MW edge data center located at 44350 Prentice Drive, Ashburn, Loudoun County, Virginia 20147 (the "Facility" or the "Project"). The Loan is structured as a two-phase facility: a construction phase of up to eighteen (18) months, followed by conversion to a seven-year permanent amortizing term loan upon satisfaction of specified conversion conditions. This memorandum is prepared for the engagement file and summarizes the transaction structure, key documents, material negotiation points, and outstanding post-closing obligations.
The principal loan documents were negotiated over a period of approximately seven weeks and executed on March 18, 2024. Final closing—including payment of the origination fee of $337,500 (0.75% of the loan commitment) and confirmation of all conditions precedent to the Borrower's eligibility for the first construction draw—occurred on March 29, 2024. The intervening period between document execution and final closing was used to satisfy several conditions precedent, including verification of the equity contribution and completion of the escrow funding process.
Cobalt Ridge Capital Partners, LP ("Cobalt Ridge"), IHDC's private equity sponsor and the holder of an 82% membership interest in IHDC, played a central role in the transaction. Cobalt Ridge provided a Completion Guaranty, guaranteeing lien-free completion of construction by the Outside Completion Date of September 30, 2025, and funded a $12,000,000 equity contribution into escrow with Meridian Surety & Title Company on March 22, 2024. The equity-first funding structure required that the full equity contribution be verified by the Lender as a condition precedent to final closing and the Borrower's eligibility for construction draws.
The total project cost is estimated at $57,000,000, consisting of land acquisition costs (completed in Q4 2023), hard construction costs under a guaranteed maximum price ("GMP") contract with Marlowe Asset Management-Pacific Construction, Inc. ("Marlowe Asset Management-Pacific"), soft costs, FF&E and MEP equipment, contingency reserves, an interest reserve, and a developer fee. The Loan represents a loan-to-cost ("LTC") ratio of 78.9%. The Facility's as-stabilized appraised value, as determined by Graystone Appraisal Group LLC ("Graystone") in an appraisal report dated February 12, 2024, is $74,500,000, yielding an as-stabilized loan-to-value ("LTV") ratio of 60.4%.
As of closing, the Facility is 73.1% pre-leased. Two tenants—Sentinel Cloud Services, Inc. ("Sentinel") and Ridgeline Federal Solutions LLC ("Ridgeline Federal")—have executed triple-net leases for an aggregate of 38,000 square feet of the Facility's 52,000 rentable square feet, with total committed annual base rent of $8,310,000. The pre-leased percentage exceeds the 70% threshold (36,400 square feet) required as a conversion condition under the Loan Agreement.
The Lender was represented by Hargrove, Liddell & Pace LLP ("HLP"), with Jonathan Breckinridge, Partner, serving as lead attorney and Megan Tso, Senior Associate, providing supporting coverage. Lender's counsel fees were capped at $175,000, reimbursed by the Borrower at closing.
The following sections of this memorandum provide a detailed summary of the parties, the Project, the Loan terms, the security package, key negotiation points, the closing documents, post-closing obligations, and observations for the engagement file.
II. PARTIES TO THE TRANSACTION
A. Borrower — Ironhaven Loudoun Edge LLC
Ironhaven Loudoun Edge LLC is a Virginia limited liability company organized as a single-purpose, bankruptcy-remote entity for the sole purpose of owning, developing, and operating the Loudoun Edge Facility. The Borrower was formed on January 8, 2024, with the Virginia State Corporation Commission ("VA SCC") and is registered under Entity ID S9103284. The Borrower's federal Employer Identification Number is 93-4178226.
The sole member of the Borrower is Ironhaven Data Centers LLC. The Borrower's operating agreement contains customary single-purpose entity covenants, including restrictions on incurring additional indebtedness, engaging in business other than the ownership and operation of the Project, commingling assets with those of any affiliate, and filing for bankruptcy without the consent of an independent director. These SPE provisions were required by the Lender and are typical for project-level financing of this nature.
The Borrower's registered agent for service of process in the Commonwealth of Virginia is Commonwealth Registered Agents Inc., located at 1021 E. Cary Street, Richmond, Virginia 23219. The Borrower holds fee simple title to the project site at 44350 Prentice Drive and will own and operate the Loudoun Edge Facility upon completion of construction.
B. IHDC / Parent — Ironhaven Data Centers LLC
Ironhaven Data Centers LLC is a Virginia limited liability company headquartered at 1900 Dominion Tower, Suite 400, Tysons Corner, Virginia 22182. IHDC is registered with the VA SCC under Entity ID S7842196 and holds federal EIN 84-3291057. IHDC serves as the sole member of the Borrower and as the operating platform through which Cobalt Ridge Capital Partners, LP invests in and manages its Northern Virginia data center portfolio.
IHDC is a portfolio company of Cobalt Ridge Capital Partners, LP. As of the date of closing, IHDC operates three existing data center facilities in Northern Virginia—two in Ashburn and one in Manassas—totaling approximately 22 MW of critical IT load capacity. The Loudoun Edge Facility will be IHDC's fourth facility and its first purpose-built edge computing site.
Key financial metrics from IHDC's audited financial statements for the fiscal year ended December 31, 2023 (prepared by Calder & Baines, PLLC, with Nina Ashford, CPA, serving as lead engagement partner) are summarized as follows:
• Revenue: $68,400,000
• EBITDA: $22,100,000
• Total Assets: $310,000,000
• Total Debt (pre-transaction): $185,000,000
IHDC is a party to the Environmental Indemnity Agreement executed in connection with the Loan and is the pledgor of 100% of the membership interests in the Borrower pursuant to the Pledge Agreement.
C. Equity Sponsor / Guarantor — Cobalt Ridge Capital Partners, LP
Cobalt Ridge Capital Partners, LP is a Delaware limited partnership with its principal office located at 300 Park Avenue South, 14th Floor, New York, New York 10010. Cobalt Ridge holds federal EIN 82-6504391. The general partner of Cobalt Ridge is Cobalt Ridge GP LLC, a Delaware limited liability company.
Cobalt Ridge is a mid-market private equity fund focused on digital infrastructure investments, including data centers, fiber networks, and related technology real estate. The investment in IHDC is held through Cobalt Ridge's Fund III, a 2021-vintage fund with $620,000,000 in committed capital. Cobalt Ridge's total assets under management across all funds are approximately $1,800,000,000.
The key principals of Cobalt Ridge involved in this transaction are:
• Marcus J. Kellner, Managing Partner & Co-Founder
• Priya Ramanathan, Partner, Head of Digital Infrastructure
Cobalt Ridge holds an 82% membership interest in IHDC and serves as the equity sponsor for the Project. In connection with the Loan, Cobalt Ridge has undertaken the following obligations and contributions:
• Execution of the Completion Guaranty, guaranteeing lien-free completion of construction by the Outside Completion Date of September 30, 2025.
• Funding of a $12,000,000 cash equity contribution (representing 21.1% of the total project cost of $57,000,000) into escrow with Meridian Surety & Title Company on March 22, 2024.
• Execution of the Environmental Indemnity Agreement, jointly with IHDC.
D. Lender — Pinnacle Federal Savings Bank
Pinnacle Federal Savings Bank is a federally chartered savings bank headquartered at 800 Constitution Avenue NW, Suite 550, Washington, DC 20001. Pinnacle's RSSD ID (assigned by the Federal Reserve) is 1038742. As of its most recently reported financial data, Pinnacle holds approximately $14,200,000,000 in total assets.
Pinnacle's Technology & Data Center Lending Group, which originated the Loan, has an established track record in data center financing, having originated approximately $2,100,000,000 in data center financings since 2019. The Loan was originated by the following Pinnacle personnel:
• Thomas R. Whitfield, Senior Vice President, Technology & Data Center Lending — lending officer responsible for origination and relationship management.
• Sandra Ng, Executive Vice President, Credit Administration — credit officer responsible for credit committee approval and oversight.
E. Lender's Counsel — Hargrove, Liddell & Pace LLP
Hargrove, Liddell & Pace LLP ("HLP") represented Pinnacle Federal Savings Bank in connection with the Loan. HLP is located at 1750 K Street NW, Suite 900, Washington, DC 20006. The HLP team consisted of:
• Jonathan Breckinridge, Partner, Real Estate Finance — lead attorney for Lender's counsel, responsible for all document negotiation, drafting, and closing coordination.
• Megan Tso, Senior Associate, Real Estate Finance — supporting associate responsible for due diligence review and ancillary document preparation.
The Borrower agreed to reimburse Pinnacle for Lender's counsel fees incurred in connection with the Loan, subject to a negotiated fee cap of $175,000. This amount was paid at closing on March 29, 2024.
F. Other Key Parties
The following additional parties played material roles in the transaction:
III. PROJECT OVERVIEW
A. The Loudoun Edge Facility
The Loudoun Edge Facility is a purpose-built, single-story edge data center to be constructed at 44350 Prentice Drive, Ashburn, Loudoun County, Virginia 20147. The Project is situated on a 3.2-acre parcel identified in Loudoun County's tax records as Tax Map Parcel No. 087-23-5571. The parcel was acquired by the Borrower's predecessor-in-interest in Q4 2023, and fee simple title was subsequently transferred to the Borrower following its formation on January 8, 2024.
The Project site is located within the Ashburn data center corridor, one of the most active data center markets in the world. The site's location provides proximity to major fiber routes and interconnection points, as well as access to Ostrander Enterprises's robust electrical infrastructure, which is a critical factor for data center operations.
Zoning. The property is zoned PD-IP (Planned Development — Industrial Park) under the Loudoun County Revised 1993 Zoning Ordinance. Data center use is a permitted use within the PD-IP zoning district, subject to compliance with applicable development standards and conditions. A zoning compliance letter confirming the Project's conformity with all applicable zoning requirements was prepared by Fenwick, Gallo & Stein LLP, with Patricia Gallo, Partner, serving as lead zoning counsel. This letter was delivered as a closing deliverable.
Building Specifications. The Facility is designed as a single-story structure comprising approximately 52,000 square feet of rentable space, with a critical IT load capacity of 4.5 MW. Key design and engineering features of the Facility include:
• Power Redundancy: N+1 redundancy on both power and cooling systems, providing fault tolerance consistent with industry standards for edge computing deployments.
• Utility Feeds: Two independent utility feeds from Northgate Partners LLC, providing diverse electrical service to the site and mitigating the risk of single-point-of-failure utility outages.
• Emergency Generation: On-site emergency diesel generation consisting of three (3) 2.5 MW diesel generators (7.5 MW total generation capacity), providing full backup power capacity in excess of the Facility's 4.5 MW critical IT load.
• Design Standard: Purpose-built for low-latency edge computing applications, serving enterprise and government tenants requiring proximity to end users and critical applications in the Northern Virginia market.
The Loudoun Edge Facility will be IHDC's fourth data center facility and its first dedicated edge computing site. IHDC's existing portfolio consists of three facilities in Northern Virginia (two in Ashburn and one in Manassas) with a combined critical IT load capacity of approximately 22 MW.
Building Permit. Loudoun County Building Permit No. BLD-2024-001287 was issued on February 28, 2024, authorizing construction of the Facility in accordance with the approved plans and specifications.
B. Construction Timeline
Construction of the Facility will be performed by Marlowe Asset Management-Pacific Construction, Inc. ("Marlowe Asset Management-Pacific") under a guaranteed maximum price ("GMP") contract. Robert "Rob" Castellano, President of Marlowe Asset Management-Pacific, executed the GMP contract on behalf of the general contractor. The GMP amount under the construction contract is $33,750,000, which covers all hard construction costs.
Performance and payment bonds have been issued by Allegiance Bond & Casualty Co. in favor of the Borrower, with dual obligee rider endorsements naming Pinnacle Federal Savings Bank as an additional obligee. These bonds provide security against contractor default on performance obligations and against unpaid claims from subcontractors and material suppliers, respectively.
The estimated construction period is fourteen (14) months from closing, with a target substantial completion date of May 29, 2025. The maximum construction period permitted under the Loan Agreement is eighteen (18) months from closing, running through September 29, 2025. The Outside Completion Date, as defined in both the Loan Agreement and the Completion Guaranty, is September 30, 2025. This date represents the outside deadline by which construction must be completed in a lien-free condition in order to avoid a default under the Completion Guaranty.
As discussed further in Section VIII.D below, the Loan Agreement provides for one extension option of six (6) additional months, exercisable upon payment of a 0.50% extension fee on the outstanding commitment, subject to the absence of any Event of Default and certification by the independent engineer (Whitmore & Associates, PC) that construction is at least 75% complete.
C. Total Project Cost Budget
The total estimated project cost for the Loudoun Edge Facility is $57,000,000, as set forth in the approved project budget attached as Exhibit A to the Construction Loan Agreement. The budget is summarized below:
The Loan amount of $45,000,000 represents 78.9% of total project costs (LTC ratio). The remaining $12,000,000, representing 21.1% of total project costs, is funded through the equity contribution from Cobalt Ridge Capital Partners, LP. Under the equity-first requirement negotiated by the Lender, the full $12,000,000 equity contribution was required to be funded before the Borrower became eligible for any construction draws under the Loan. This equity contribution was funded into escrow with Meridian Surety & Title Company on March 22, 2024, seven days prior to the final closing date.
The contingency line item of $1,687,500 (representing 5% of hard construction costs) provides a buffer against unanticipated cost increases. This contingency reserve, combined with the GMP structure of the Marlowe Asset Management-Pacific construction contract, was cited during negotiations as a basis for limiting the scope of the Completion Guaranty carve-outs (as discussed in Section VIII.A).
IV. SUMMARY OF LOAN TERMS
A. Construction Phase (Phase 1)
The construction phase of the Loan is structured as a revolving construction facility under which the Borrower may draw funds on a monthly basis to pay project costs as construction progresses. The key terms of the construction phase are as follows:
Commitment Amount: $45,000,000.
Interest Rate: The Secured Overnight Financing Rate ("SOFR") plus a spread of 275 basis points (2.75%), with a SOFR floor of 3.00%. Interest accrues on the outstanding principal balance and is payable monthly. The SOFR rate is determined on the basis of the Term SOFR rate published by the CME Group Benchmark Administration Limited for one-month tenor, as of the second U.S. Government Securities Business Day preceding the applicable interest period.
Payment Terms: Interest-only during the construction period. No amortization of principal is required during Phase 1.
Construction Period: Up to eighteen (18) months from the closing date (March 18, 2024 through September 29, 2025), with one six-month extension option available (see Section VIII.D).
Draw Procedures: Construction draws are available on a monthly basis, subject to satisfaction of the following conditions for each draw:
(a) Submission of a completed draw request in the form attached to the Loan Agreement, together with supporting documentation including contractor payment applications, invoices, and lien waivers from the general contractor and all subcontractors for work covered by the prior draw.
(b) Certification by the independent engineer, Whitmore & Associates, PC (James A. Whitmore, PE), that the work for which payment is requested has been completed in accordance with the approved plans and specifications and that the percentage of completion is consistent with the draw amount requested.
(c) Maintenance of a 10% retainage holdback on each draw, which retainage will be released only upon satisfaction of the conversion conditions, including delivery of final lien waivers and issuance of the certificate of occupancy.
Independent Engineer Fee: The Borrower is responsible for payment of a $3,500 fee per draw inspection conducted by Whitmore & Associates, PC.
B. Conversion Conditions
Conversion from the construction loan to the permanent term loan is not automatic and requires the Borrower to satisfy all of the following Conversion Conditions:
1. Certificate of Occupancy. Issuance of a certificate of occupancy ("COO") by Loudoun County, confirming that the Facility has been constructed in accordance with applicable building codes and is fit for occupancy and use as a data center.
2. Pre-Leasing Threshold. Achievement and maintenance of the 70% pre-leasing threshold, meaning that not less than 36,400 square feet of the Facility's 52,000 rentable square feet must be subject to executed leases with tenants in occupancy or with lease commencement dates within ninety (90) days of the Conversion Date. As of closing, this threshold is satisfied at 73.1% (38,000 square feet).
3. Final Lien Waivers. Delivery of final, unconditional lien waivers from Marlowe Asset Management-Pacific Construction, Inc. (general contractor) and all subcontractors, material suppliers, and equipment vendors that performed work or supplied materials in connection with the construction of the Facility.
4. As-Built Survey. Delivery of an as-built ALTA/NSPS survey of the completed Facility, certified to the Lender and the title insurer, reflecting the Facility as constructed and confirming no encroachments or other survey defects.
5. Appraisal Confirmation. Delivery of an updated as-stabilized appraisal from Graystone Appraisal Group LLC (or another appraiser acceptable to the Lender) confirming that the Loan-to-Value ratio does not exceed 70% based on the outstanding construction loan balance at the time of conversion.
The Borrower is required to provide written notice to the Lender of its intent to convert not less than thirty (30) days prior to the proposed Conversion Date, together with evidence of satisfaction (or anticipated satisfaction) of each Conversion Condition.
C. Permanent Phase (Phase 2)
Upon satisfaction of the Conversion Conditions, the outstanding construction loan balance will convert to a permanent term loan with the following terms:
Converted Principal: The outstanding principal balance of the construction loan as of the Conversion Date. It is anticipated that the full $45,000,000 commitment will have been drawn by the time of conversion, but the converted amount will be the actual outstanding balance.
Interest Rate: Fixed at the 5-Year U.S. Treasury rate as determined on the Conversion Date, plus a spread of 225 basis points (2.25%). The interest rate will be fixed for the full term of the permanent loan.
Amortization: Twenty-five (25) year amortization schedule, with monthly payments of principal and interest calculated on a fully amortizing basis over a 25-year term.
Maturity: Seven (7) years from the Conversion Date. Based on the estimated substantial completion date of May 29, 2025, and assuming conversion occurs shortly thereafter (estimated Q3/Q4 2025), the permanent loan maturity is estimated to fall in approximately Q4 2032.
Prepayment Terms: The permanent loan is subject to the following prepayment provisions:
(a) During the first three (3) years following the Conversion Date, prepayment (in whole or in part) is subject to a yield maintenance premium calculated using the present value of the remaining payment stream discounted at the applicable U.S. Treasury rate plus 50 basis points.
(b) During the fourth (4th) year following the Conversion Date, prepayment is permitted subject to a premium equal to 1% of the prepaid principal amount.
(c) From and after the fifth (5th) anniversary of the Conversion Date, prepayment is permitted without premium or penalty (open prepayment).
These prepayment terms were the subject of significant negotiation, as discussed in Section VIII.C below.
D. Fee Structure
The fee structure for the Loan is summarized in the following table:
The origination fee of $337,500 was paid by the Borrower to Pinnacle on March 29, 2024, the final closing date. The unused line fee will accrue quarterly on the undrawn portion of the $45,000,000 commitment and is payable in arrears. The exit fee at conversion is calculated as 0.25% of the outstanding principal balance as of the Conversion Date and is due and payable on the Conversion Date.
E. Appraisal and Valuation
The appraisal of the Project was prepared by Graystone Appraisal Group LLC, with David Huang, MAI, serving as the appraiser. The appraisal report is dated February 12, 2024, and was prepared in conformity with the Uniform Standards of Professional Appraisal Practice ("USPAP") and in compliance with the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").
Key valuation conclusions from the Graystone appraisal are as follows:
• As-Stabilized Appraised Value: $74,500,000
• Loan-to-Value Ratio (As-Stabilized): 60.4% ($45,000,000 ÷ $74,500,000)
• Loan-to-Cost Ratio: 78.9% ($45,000,000 ÷ $57,000,000)
The as-stabilized value of $74,500,000 assumes completion of construction, lease-up to a stabilized occupancy level, and market rental rates consistent with the Northern Virginia data center market. The LTV ratio of 60.4% provides significant cushion below the maximum 70% LTV covenant applicable during the permanent phase and the 70% LTV confirmation required as a Conversion Condition.
V. FINANCIAL COVENANTS (POST-CONVERSION)
The Loan Agreement imposes the following financial covenants during the permanent phase (Phase 2), each of which is designed to ensure the ongoing financial health of the Project and the Borrower's ability to service the Loan:
Minimum Debt Service Coverage Ratio (DSCR). The Borrower is required to maintain a minimum DSCR of 1.30x, tested on a quarterly basis. For purposes of this covenant, DSCR is calculated as the ratio of (a) net operating income of the Facility for the applicable trailing twelve-month period to (b) the aggregate debt service (principal and interest) payable during such period. The Borrower is required to deliver a quarterly compliance certificate to the Lender demonstrating satisfaction of this covenant within thirty (30) days after the end of each calendar quarter. A failure to maintain the minimum DSCR of 1.30x constitutes an Event of Default under the Loan Agreement.
Maximum Loan-to-Value. The Loan-to-Value ratio may not exceed 70% at any time during the permanent phase. This covenant is tested annually on the basis of an updated appraisal of the Facility commissioned by the Lender and prepared at the Borrower's expense. The Lender has the right to select the appraiser, subject to the requirement that the appraiser hold the MAI designation and be qualified to appraise data center properties. If the LTV exceeds 70%, the Borrower is required to prepay principal in an amount sufficient to restore compliance within sixty (60) days of notice.
Minimum Liquidity. The Borrower is required to maintain a minimum of $5,000,000 in unrestricted cash or cash equivalents at all times during the permanent phase. This covenant is tested on a continuous basis, with compliance certified quarterly through the delivery of the Borrower's compliance certificate. The minimum liquidity covenant was a point of negotiation in connection with the cash sweep trigger, as discussed in Section VIII.B below.
Springing Cash Sweep. The Loan Agreement provides for a springing cash sweep mechanism that is activated upon the DSCR falling below 1.20x (as measured on a trailing twelve-month basis). When triggered, all net operating income of the Facility, after payment of operating expenses and debt service, is swept into a Lender-controlled reserve account. The cash sweep remains in effect until the DSCR is restored to at least 1.25x for two consecutive quarters. The 1.20x trigger level was negotiated down from the Lender's initial proposal of 1.30x, as discussed further in Section VIII.B.
VI. PRE-LEASING STATUS
One of the key Conversion Conditions under the Loan Agreement is the achievement and maintenance of a 70% pre-leasing threshold, meaning that not less than 36,400 square feet of the Facility's 52,000 rentable square feet must be subject to executed leases. As of the closing date, the Facility is 73.1% pre-leased, exceeding the required threshold by approximately 1,600 square feet. The pre-leasing status is summarized below:
Pre-Leased Percentage: 38,000 SF ÷ 52,000 SF = 73.1%
Remaining Unleased Capacity: 14,000 SF / approximately 1.2 MW of critical IT load
Both leases are structured as triple-net ("NNN") leases, under which the tenants are responsible for their proportionate share of property taxes, insurance, and common area maintenance costs, in addition to base rent. The lease terms—ten years for Sentinel and seven years for Ridgeline Federal—provide substantial revenue visibility and support the debt service coverage projections underlying the Loan.
Sentinel Cloud Services, Inc. is the anchor tenant, leasing 22,000 square feet at a base rent of $225 per square foot, for total annual base rent of $4,950,000. Ridgeline Federal Solutions LLC, a government-focused technology services provider, leases 16,000 square feet at a base rent of $210 per square foot, for total annual base rent of $3,360,000. The combined annual base rent of $8,310,000 from the two pre-leased tenants, when evaluated against the estimated annual debt service under the permanent loan, supports a projected initial DSCR well in excess of the 1.30x covenant minimum.
Tenant estoppel certificates and subordination, non-disturbance, and attornment agreements ("SNDAs") were obtained from both Sentinel Cloud Services, Inc. and Ridgeline Federal Solutions LLC prior to closing and delivered to the Lender as closing deliverables. The estoppels confirmed the material terms of each lease, including the commencement date, rental rate, term, security deposit, and the absence of any landlord defaults.
VII. SECURITY PACKAGE AND COLLATERAL
The Loan is secured by a comprehensive collateral package, including real property security, assignments of leases and rents, pledges of personal property and equity interests, guaranties, insurance, and cash management arrangements. Each component of the security package is described below.
A. Real Property Security
The Borrower has granted to a trustee for the benefit of Pinnacle Federal Savings Bank a first-priority Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (the "Deed of Trust"), dated March 18, 2024, encumbering the Borrower's fee simple interest in the project site located at 44350 Prentice Drive, Ashburn, Loudoun County, Virginia 20147 (Tax Map Parcel No. 087-23-5571), together with all improvements, fixtures, and appurtenances thereto. The Deed of Trust has been prepared for recording in the Loudoun County Circuit Court Clerk's Office. Delivery of recorded copies is a post-closing obligation (see Section X.A).
Title Insurance. A lender's title insurance policy has been issued by Meridian Surety & Title Company, with Karen Pavelka serving as title officer. Key details of the title policy are as follows:
• Insured Amount: $45,000,000
• Effective Date: March 18, 2024
• Policy Type: ALTA Loan Policy (2006 form, as amended)
• Named Insured: Pinnacle Federal Savings Bank, its successors and assigns
The following endorsements were obtained and attached to the lender's title policy:
• ALTA 3.1 — Zoning (with parking and loading)
• ALTA 9 — Comprehensive (restrictions, encroachments, minerals)
• ALTA 17 — Access and entry
• ALTA 28 — Easement (damage or enforced removal)
• Construction loan / disbursement endorsement
No material title defects were identified during the title review process. A separate Title Commitment Analysis Memorandum, dated February 26, 2024, was prepared by Cynthia Ho, Associate, and is maintained in the engagement file. That memorandum details the review of all Schedule B exceptions and confirms that all exceptions are standard and acceptable for a transaction of this nature. Utility easements and PD-IP zoning restrictions applicable to the property were addressed through the standard ALTA endorsements described above.
B. Assignment of Leases and Rents
The Deed of Trust includes an absolute assignment of all leases and rents relating to the Project. This assignment covers all existing leases, including the Sentinel Cloud Services, Inc. lease (executed January 15, 2024) and the Ridgeline Federal Solutions LLC lease (executed February 5, 2024), as well as all future leases entered into by the Borrower during the term of the Loan. The assignment is absolute in nature (rather than a collateral assignment), consistent with Virginia law and Pinnacle's standard documentation. However, the Loan Agreement provides that the Lender will not exercise its rights under the assignment or direct tenants to pay rent directly to the Lender unless and until an Event of Default has occurred and is continuing.
Tenant estoppel certificates and subordination, non-disturbance, and attornment agreements ("SNDAs") were obtained from both Sentinel Cloud Services, Inc. and Ridgeline Federal Solutions LLC and delivered to the Lender prior to closing. The SNDAs provide that, so long as each tenant is not in default under its lease, its leasehold interest will not be disturbed by any foreclosure or exercise of remedies by the Lender under the Deed of Trust.
C. Assignment of Construction Contract and Plans
The Borrower has executed a Collateral Assignment of Construction Contract, Plans, and Permits, dated March 18, 2024, in favor of Pinnacle Federal Savings Bank. This instrument provides for the collateral assignment to the Lender of the following:
• The GMP construction contract with Marlowe Asset Management-Pacific Construction, Inc. (contract price: $33,750,000), including all amendments, change orders, and related agreements.
• All architectural and engineering plans and specifications for the Facility.
• All governmental permits and entitlements relating to the construction of the Facility, including Loudoun County Building Permit No. BLD-2024-001287.
Robert "Rob" Castellano, President of Marlowe Asset Management-Pacific Construction, Inc., has executed a Consent and Acknowledgment to the collateral assignment, acknowledging the assignment and agreeing to perform its obligations under the construction contract for the benefit of the Lender upon the Lender's exercise of its rights under the assignment. The assignment is exercisable by the Lender only upon the occurrence and during the continuance of an Event of Default under the Loan Agreement.
D. UCC Filings and Personal Property
The Deed of Trust includes a security agreement and fixture filing covering all personal property, equipment, and fixtures located at or used in connection with the Project, including all MEP equipment, generators, HVAC systems, uninterruptible power supply ("UPS") systems, and other data center infrastructure equipment. In addition, UCC-1 financing statements are to be filed with the Virginia State Corporation Commission covering the Lender's security interest in all of the Borrower's personal property, equipment, and fixtures. The filing of UCC-1 financing statements is a post-closing obligation to be completed within thirty (30) days of closing (see Section X.A).
E. Equity Pledge
IHDC has executed a Pledge Agreement, dated March 18, 2024, pledging 100% of the membership interests in the Borrower (Ironhaven Loudoun Edge LLC) to Pinnacle Federal Savings Bank. The Pledge Agreement grants the Lender a first-priority security interest in all of IHDC's rights, title, and interest in and to its membership interest in the Borrower, including all economic and governance rights associated with such interest. Upon the occurrence of an Event of Default, the Lender has the right to exercise all remedies of a secured party under Article 9 of the Uniform Commercial Code, including the right to foreclose on the pledged membership interests and assume control of the Borrower.
F. Guaranties and Indemnities
Completion Guaranty. Cobalt Ridge Capital Partners, LP has executed a Completion Guaranty, dated March 18, 2024, in favor of Pinnacle Federal Savings Bank. Under the Completion Guaranty, Cobalt Ridge guarantees the lien-free completion of construction of the Facility by the Outside Completion Date (September 30, 2025) in accordance with the approved plans and specifications and the terms of the GMP contract with Marlowe Asset Management-Pacific Construction, Inc.
The Completion Guaranty is structured as a limited recourse guaranty with specifically negotiated carve-outs. Cobalt Ridge's liability under the Completion Guaranty is limited to the cost of completing construction in a lien-free condition. However, the guaranty becomes full recourse (up to the outstanding loan balance) upon the occurrence of any of the following carve-out events:
(i) Fraud or intentional misrepresentation by the Borrower, IHDC, or Cobalt Ridge in connection with the Loan or the Project.
(ii) Misapplication or misappropriation of Loan proceeds, insurance proceeds, or condemnation awards by the Borrower or any person acting on the Borrower's behalf.
(iii) Environmental liability arising from the presence, release, or threatened release of hazardous materials at, on, under, or from the Project site, to the extent caused by the Borrower, IHDC, Cobalt Ridge, or their respective agents, contractors, or tenants.
(iv) Any voluntary bankruptcy filing by the Borrower or the Guarantor, or any collusive involuntary bankruptcy filing.
The scope of these carve-outs was a significant point of negotiation, as discussed in Section VIII.A below.
Environmental Indemnity Agreement. IHDC and Cobalt Ridge Capital Partners, LP have jointly executed an Environmental Indemnity Agreement, dated March 18, 2024, in favor of Pinnacle Federal Savings Bank. Under this agreement, the indemnitors provide an unsecured, non-recourse carve-out indemnification to the Lender for all environmental liabilities, remediation costs, and third-party claims relating to the Project site, including claims arising under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and applicable Virginia environmental statutes. The Environmental Indemnity Agreement references and relies upon the Phase I Environmental Site Assessment of the Project site dated February 16, 2024, which did not identify any recognized environmental conditions requiring further investigation or remediation.
G. Insurance
The Borrower has obtained builder's risk and commercial property insurance from Atlas Property & Casualty Insurance Company under Policy No. BRA-2024-00417. The builder's risk coverage amount is $48,000,000 on a replacement cost basis, which exceeds the total estimated hard construction cost and provides adequate coverage for the full scope of the construction project.
Pinnacle Federal Savings Bank is named as an additional insured and a loss payee on all insurance policies relating to the Project, including the builder's risk policy, commercial general liability policy, and umbrella/excess liability policy. Certificates of insurance evidencing all required coverages and the Lender's named insured and loss payee status were delivered to the Lender prior to closing.
The Borrower is required to maintain builder's risk insurance throughout the construction period and to transition to a standard commercial property insurance policy upon completion of construction and issuance of the certificate of occupancy.
H. Cash Management
A Cash Management Agreement, dated March 18, 2024, has been executed by the Borrower and Pinnacle Federal Savings Bank. The Cash Management Agreement establishes a lockbox arrangement for the collection of all rental income from the Facility following conversion to the permanent loan. All tenant rental payments will be directed to a lockbox account controlled by the Lender. From the lockbox, funds will be applied in a specified waterfall: first, to the payment of debt service; second, to required reserve accounts (including tax, insurance, and capital expenditure reserves); third, to any amounts due under the springing cash sweep (if triggered); and fourth, to the Borrower's operating account.
The springing cash sweep mechanism is activated upon the DSCR falling below 1.20x, as measured on a trailing twelve-month basis. When the cash sweep is triggered, all excess cash flow (after payment of operating expenses, debt service, and required reserves) is swept into a Lender-controlled reserve account and held as additional collateral. The cash sweep remains in effect until the DSCR is restored to at least 1.25x for two consecutive calendar quarters, at which point funds in the reserve account are released to the Borrower. The negotiation of the cash sweep trigger level is discussed in Section VIII.B.
VIII. KEY NEGOTIATION POINTS
This section summarizes the principal issues that were the subject of negotiation between borrower's counsel (Calderwood & Harkness LLP) and Lender's counsel (Hargrove, Liddell & Pace LLP / Jonathan Breckinridge) during the documentation process. These summaries are provided for the engagement file and to assist the C&H team in future transactions involving similar structures or counterparties.
A. Scope of Completion Guaranty Carve-Outs
The scope of the recourse carve-outs under the Completion Guaranty was one of the most significant documentation issues in the transaction. Lender's counsel (HLP / Breckinridge) initially proposed a broad set of recourse carve-outs that extended beyond the traditional "bad boy" categories. In particular, HLP's initial draft included a carve-out providing that the Completion Guaranty would become full recourse in the event of any cost overrun exceeding the contingency reserve amount ($1,687,500). This formulation would have effectively exposed Cobalt Ridge to full recourse liability for any construction cost overruns in excess of a relatively modest threshold, undermining the limited recourse structure of the guaranty.
Calderwood & Harkness took the position that cost overrun risk should be addressed through the contractual protections already in place—specifically, the GMP structure of the Marlowe Asset Management-Pacific construction contract, the performance and payment bonds issued by Allegiance Bond & Casualty Co., and the contingency line item in the approved project budget—rather than through the expansion of guaranty exposure. After several rounds of negotiation and a conference call involving Marcus J. Kellner (Managing Partner, Cobalt Ridge), Priya Ramanathan (Partner, Cobalt Ridge), Jonathan Breckinridge (HLP), and Angela Fontaine (C&H), the parties agreed to limit the recourse carve-outs to the following traditional categories:
(i) Fraud or intentional misrepresentation.
(ii) Misapplication or misappropriation of Loan proceeds, insurance proceeds, or condemnation awards.
(iii) Environmental liability.
(iv) Voluntary bankruptcy filing by the Borrower or the Guarantor.
The cost overrun carve-out was deleted in its entirety. Cobalt Ridge's internal counsel reviewed and approved the final carve-out language. This outcome was consistent with market practice for construction loans of this type and reflected the strong risk mitigation provided by the GMP contract and bonding structure.
B. Cash Sweep Trigger
The level at which the springing cash sweep would be triggered was the most contested commercial point in the transaction. Pinnacle's initial term sheet and HLP's initial draft of the Cash Management Agreement proposed that the cash sweep would be triggered upon the DSCR falling below 1.30x—the same level as the DSCR Event of Default threshold under the Loan Agreement. Under this formulation, any decline in DSCR below the covenant minimum would simultaneously trigger both an Event of Default and a cash sweep, providing the Borrower with no operational cushion between the cash management consequence and the loan default consequence.
Calderwood & Harkness argued that this structure was overly punitive and commercially unreasonable, as it would deprive the Borrower of any meaningful warning period or opportunity to address a DSCR shortfall before the activation of the sweep mechanism. We proposed that the cash sweep trigger be set at DSCR < 1.10x, creating a 20-basis-point cushion below the Event of Default level.
After extensive negotiation, including discussions between Thomas R. Whitfield (Pinnacle, SVP), Sandra Ng (Pinnacle, EVP, Credit Administration), Priya Ramanathan (Cobalt Ridge), and Angela Fontaine (C&H), the parties agreed to set the cash sweep trigger at DSCR < 1.20x. This provides a 10-basis-point cushion between the sweep trigger and the DSCR Event of Default level (1.30x), giving the Borrower a meaningful early-warning mechanism while still providing the Lender with additional collateral protection in a stress scenario.
The resolution of this issue was facilitated by two factors: (i) the Facility's strong pre-leasing position (73.1%, exceeding the 70% threshold), which demonstrated the stability of the Facility's anticipated revenue stream; and (ii) the creditworthiness of the two anchor tenants, Sentinel Cloud Services, Inc. and Ridgeline Federal Solutions LLC, both of which are established operators with strong financial profiles. Lender's credit committee (Sandra Ng) ultimately agreed to the 1.20x trigger on the condition that the minimum liquidity covenant of $5,000,000 in unrestricted cash at the Borrower level was maintained throughout the permanent phase as an additional backstop.
C. Yield Maintenance Prepayment Terms
The prepayment provisions applicable during the permanent phase were another significant area of negotiation. Pinnacle's initial term sheet proposed a yield maintenance premium for the full five (5) years following the Conversion Date, with no open prepayment window until the sixth year. This structure would have effectively locked the Borrower into the permanent loan for five years post-conversion, limiting Cobalt Ridge's ability to refinance the Loan or pursue a disposition of the Facility in the early years of the permanent phase.
Calderwood & Harkness negotiated on behalf of the Borrower and Cobalt Ridge for greater prepayment flexibility, recognizing that Cobalt Ridge, as a private equity sponsor, would likely seek to refinance or exit the investment within a three-to-five-year window following stabilization. The final negotiated terms are as follows:
• Years 1–3 post-conversion: Yield maintenance premium, calculated using the present value of the remaining payment stream discounted at the applicable U.S. Treasury rate plus 50 basis points.
• Year 4 post-conversion: Prepayment permitted subject to a 1% premium on the prepaid principal amount.
• Year 5 and thereafter: Open prepayment without premium or penalty.
This structure provides the Borrower and Cobalt Ridge with refinancing flexibility starting in year 4 post-conversion, while still providing Pinnacle with yield protection during the first three years of the permanent phase. This outcome was consistent with recent market transactions in the data center financing space.
D. Extension Fee and Construction Period
The maximum construction period under the Loan Agreement is eighteen (18) months from closing, running through September 29, 2025. In addition, the Loan Agreement provides for one extension option of six (6) additional months, available upon the Borrower's satisfaction of the following conditions:
(a) Payment of an extension fee equal to 0.50% of the outstanding commitment amount.
(b) No Event of Default existing at the time of the extension request or at the commencement of the extension period.