Fident Capital has facilitated the placement of a $7.25M construction loan and $2.95M of joint venture equity for the development of a 60-unit multifamily project located in La Mesa, California, a sub-market 15 minutes east of downtown San Diego. The project contains over 43,000 square feet of rentable living space in 41 one-bedroom and 19 two-bedroom units.
Construction financing was provided by a regional bank at 72% loan to cost on a two year term with extensions available. The floating rate loan priced at prime plus 1.25% with a floor of 4.50%; a half point fee was paid to the lender at closing. The joint venture equity, sourced through a private raise from high net worth individuals, provided 90% of the required equity in exchange for an 8% preferred return and 50% of project profits.
Challenges to financing included validating pro forma revenue assumptions and structuring an early “soft close” on the loan. Even though the La Mesa market boasts a vacancy rate below 2%, no significant development has occurred near the project for decades. Neither of the market’s two main product types, (1960s vintage B and C class garden-level apartments and newer large-scale class A apartments) are directly comparable to the subject property. Through rent surveys, rigorous analysis, and property tours Fident was able to illuminate the reasonableness of projected rents which are 35% higher than older neighboring properties, yet below class A assets.
Additionally, the Sponsor wished to commence demolition on the site immediately following acquisition despite having incomplete design and construction documents which prevented the lender from being able to completely underwriting the construction loan. Fident negotiated for an early close, with no loan proceeds advanced, that provided the lender a first position lien prior to work commencing and allowed the sponsor to keep the project on schedule by funding early costs with equity while construction drawings were finalized.