First Amended and Restated Operating Agreement

This First Amended and Restated Operating Agreement governs Meridian Heights LLC, a Delaware limited liability company formed to develop a 280-unit Class A mixed-use apartment complex with ground-floor retail at 4200 East Riverside Drive in Austin, Texas. The $62 million total capitalization is split 5%/95% between Crestview Development Group LLC as sponsor and Apex Institutional Partners Fund VII as the institutional investor. The Agreement grants Crestview day-to-day management authority subject to a major decision list, with a two-tier promote structure at an 8% preferred return and 12% IRR hurdle — a structure that is below current market for ground-up development, where 3-tier waterfalls with higher hurdles are standard. On the surface, the deal economics are reasonable for a ground-up development JV in the current Austin market.

However, our analysis identified eight risk provisions that warrant attention, including one critical issue: Section 7.4(b) grants the Investor a unilateral right to remove the Manager upon a determination that a "Material Adverse Event" has occurred, a term defined broadly enough to encompass market downturns, construction delays, and cost overruns that are endemic to ground-up development. This removal trigger, combined with a development fee clawback provision that lacks any cure period and a 90% capital call dilution penalty, creates a scenario where the sponsor could lose both its management position and its accrued economics based on circumstances largely outside its control. The absence of an independent determination mechanism for the removal trigger is the single most significant issue in this Agreement.

On the positive side, the Agreement includes meaningful protections that suggest room for negotiation: promote participation despite only a 5% capital contribution, a robust tax distribution provision, and an information rights framework that exceeds the statutory minimum under 6 Del. C. § 18-305. We recommend that Crestview negotiate targeted amendments to the three must-change provisions identified below before execution. The deal is commercially attractive, but the current draft allocates construction and market risk almost entirely to the sponsor while the investor retains optionality to exit the management relationship at minimal cost.