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$3.6M JV Equity
$6.1M Construction Financing
Fident Capital secured $9.7MM of debt and equity financing for a 23-unit single-family development in Chula Vista. A Southern California private equity group primarily focused on residential opportunities provided joint venture equity. Their $3.6MM investment balances a $6.1MM construction loan provided by a local San Diego bank who provided 60% of the project’s cost.
This infill development features great views of the area and distant ocean views. Homes average about 1,800 square feet with both 4 and 5 bedroom floor plans and price competitively at $275 per square foot. The Sponsor sourced the site (a former church and day care facility) through a close principal relationship presenting an off-market opportunity. Already entitled, the project’s first deliveries should come in mid-2016.
Identifying suitable sales comparables proved to be one of the main challenges to financing the project. An inferior comparable existed in the submarket, but due to the infill nature of the project, there weren’t other nearby projects. Instinctually, new single-family detached homes priced around $500,000 felt highly achievable. Fident supported the Sponsor’s price assertions by analyzing completely renovated old housing stock in the area and by analyzing new developments in the adjacent submarkets.
The impact of California’s new WQMP standards presented another challenge. Bringing the entitlements up-to-date meant that one of the project’s lots would be lost to storm water mitigation. However, in the course of refining budget, cost savings from a re-tooled grading plan provided a sufficient offset to the fact that the seller remained firm on the purchase price. In all likelihood, given the tight new home supply in San Diego County, the project will outperform expectations.
Construction financing priced at a 4.50% rate with a 1% origination fee. The joint venture equity provided for a 90/10 co-invest and a 2-tier waterfall which opened up to 50/50 split in the final tier. The Sponsor’s plans for further growth in the residential space aligned well with their new partner. With a timeline of less than 18 months, the pro forma generates over a 25% project IRR.