Fident Capital secured $9.9MM (41% LTV) of permanent financing for a 16-unit multifamily asset with 4,500 SF of ground floor retail in the Pacific Beach area of San Diego, CA. The lender, a regional bank headquartered in Los Angeles, provided 7-year fixed-rate debt priced in the mid-5% range with three years of interest-only payments.
Maximizing loan proceeds proved the biggest challenge of the deal. Several factors constrained the property’s underwritten net operating income, including fluctuating historical monthly operating expenses. Fident helped alleviate operating expense concerns by drilling into the property’s historicals to uncover and justify monthly fluctuations as one-time charges, or lags in billing from utility/sub-metering vendors.
The fact that a portion of the commercial space, which was leased but not yet occupied, was undergoing capital improvements further complicated the marketing effort. Many lenders couldn’t hit full proceeds because they wouldn’t recognize the revenue expected from that space. Fident sourced a loan with an earnout that funded when the new lease started paying. This structure allowed the borrower to secure a majority of the loan proceeds upfront, and the early close saved considerable expense in a rapidly escalating rate environment. Fident also negotiated a 75-day rate lock with other attractive terms such as a flexible prepay and minimal lender fees.
Despite the deal’s complexity, the quality real estate attracted several competitive quotes. The asset is located on a prominent thoroughfare one block from the Pacific Ocean, and is accessible to a myriad of dining, retail, and recreational options around Pacific Beach and Mission Bay. Each of the 16 residential units has a unique multi-level design with a private entrance, which brings in premium rents in an area dominated by heavily dated product. The recapitalization allowed the client to reduce his monthly debt service and repatriate the majority of his equity before rates escalated.