Fident Capital successfully capitalized an $8MM acquisition and renovation of a 29,000 square foot office building in Chula Vista, California. The $1.5MM of Joint Venture Equity and $5.6MM of Bridge Debt supports the repositioning of a long-impaired asset to medical office.
This uniquely sourced REO fell victim to the troubles of the Great Recession. Litigation around the project and the associated lis pendens effectively chilled would-be buyers, and the bank’s reluctance to improve cold shell space and pay leasing commissions meant that high vacancy from the point of foreclosure remained during several years of market recovery.
The previous owner acquired the asset with an aggressive value-add plan. Significant renovations to major systems from that time were a major plus. Still, with over 60% of the property vacant and more than half of that cold shell, the Sponsor was able to secure a price at approximately $2.5MM below the former owner’s peak investment. With limited deferred maintenance, the Sponsor plans light common area upgrades and cold shell improvements to reposition the asset as a professional medical office.
Fident encountered several challenges to the financing. Critically, the team effectively distinguished the office asset as suitable for inclusion within the medical office comparable set. Further demonstrating supply constraints in the adjacent Bonita submarket helped validate the subject property as a prime candidate for conversion to medical uses, which proved essential to financing.
An exceptionally low bank appraisal, received late in the due diligence process, provided another challenge. The Sponsor secured a modest escrow extension while Fident engaged a trusted private finance company to replace the bank and close quickly. Their appraisal, somewhat predictably, came in 50% higher than the bank’s.
On the equity side, Fident partnered with an East Coast opportunity fund targeting smaller investment opportunities. Their 30-year track record with heavy value-add projects proved an ideal fit. Fident negotiated an 80/20 co-invest structure with a three-tier waterfall, providing the Sponsor increasing promotes after clearing an initial 12% preferred return for all capital. The equity partner’s underwritten returns exceed a 25% IRR.