Fident Capital secured the full capital stack for the acquisition and development of an 84-unit T.O.D. multifamily project in the Lemon Grove area of San Diego, CA. A local family office provided $4MM of joint venture equity and a regional bank provided a $13.8MM non-recourse construction loan (75% LTC). The project, located near a freeway and trolley station, contains mostly one and two bedroom units and will target younger professionals and small families.
The Sponsor’s astute evaluation of the market led to a two parcel assemblage for the project. One parcel, mis-marketed as an industrial property where residential uses were allowed, provided an exceptional basis which then served as the comp for the off-market acquisition of the adjacent piece. The opportunistic buy generated an exceptional land basis which allowed for an elevator served 3 over concrete podium construction in an area with relatively lower rents.
In this un-gentrified area, validating pro forma rental rates proved challenging. Through research and collaboration with a local property management company, Fident pulled comparables from nearby areas to support rental assumptions. Additionally, our recent funding of a similar project in a neighboring submarket contributed to the insights that allowed capital to understand market rents.
While enjoying the benefits of a true T.O.D. location, the site possessed some negatives to be overcome. In the end, the trolley station’s recent multi-million dollar renovation, new development adjacent to the site, and the impact of the proposed developer itself provide sufficient comfort to capital. Working with local funding sources also proved beneficial; they understood the area and the opportunity within the redevelopment area of Lemon Grove.
The equity partner funded as senior equity with only a modest hurdle before a 50/50 profit split. Ideal for this project, this family office focuses on smaller residential projects within the Southwest market needing $2MM to $10MM of equity. Construction financing priced at 4.50% with a 1% origination fee. The bank required no personal guarantee, only a completion guarantee and standard carve outs.
