- The city is currently submerged by water (although I guess there is nothing saying there cannot be pockets of air down there).
- It may contain Blackmoor era technology
- It houses a permanent gate to the Plane of Water
- Several Velya Vampires may be found there and possibly other undead as the city was flooded quickly by the gate opening.
- The population of Fenhold is descended by the survivors
This city was a research fascility. The Gate to the Plane of Water was opened by Blackmoorian scientists, but kept in check until the Great Rain of Fire or some other incident destabilized it. Actually I would suggest that the scientists here survived the GRoF, and were simply isolated over the milennia until the BC1700 Cataclysm ("Lesser Rain of Fire") opened the portal. This would explain how the connection between the Blackmoorians and the Fenhold humans. OTOH, there might be other problems with that theory.
Could Rafiel have been one of the researchers connected to this base? Maybe he wasnt permanently based there, but he could have had some connections to the place. If so, he could have directed the Shadowelves to search for the city.
Taking ideas from the D20 Blackmoor line, it could be interesting to have this be one of the bases of the Ordo Elementarum. They arent big fans of technology, but I guess by the time of BC3000, pretty much everyone were using tech as part of their daily lives. The Ordo Elementarum could at this point have kept on being dedicated to their focus on the elements, but may have lost most of their anti-technological bias.
I could see the researchers having captured a number of water breathing creatures, from Mermaids to underwater monsters that they would keep in "tanks". So anything could by now have escaped and be found in the city.