Fident Capital secured $18.0MM of non-recourse bridge financing for a newly constructed, five-story, 55-unit, mixed-use multifamily development in the vibrant North Park submarket of San Diego, California.
This refinance, following the project’s construction loan financing in March 2023, lowered the borrower’s interest rate, established positive cash flow upon stabilization, and required no additional cash investment. The financing also provides flexibility for the borrower to season the property before seeking long-term, permanent debt.
The transaction presented several challenges. The borrower sought a loan amount equivalent to 85% of project cost, maintaining the leverage achieved in the construction loan. However, by June 2024 (15 months after the construction loan closed), interest rate hikes had reshaped lending conditions with lenders significantly tightening loan sizing criteria. Fident addressed these challenges by scrutinizing operating expense assumptions with data from comparable properties managed by the borrower and their property manager to present a conservative and defensible pro forma with below-average operating costs.
Despite tighter market conditions, about two-thirds of lenders approached expressed interest, though only a few could meet the required proceeds. These lenders focused on per-unit loan metrics, finding the $327K/unit loan basis attractive. Strong market competition during the bidding process allowed Fident to negotiate favorable terms, including an increase of $1.5MM in loan proceeds, a 75-bps rate reduction, one-point reduction in fees, and a reduction in the minimum interest period from 18 to 9 months. The final loan also reserved $1MM for city permit fees and subcontractor payments, carried no exit fee or rate cap, and featured reasonable interest reserve replenishment provisions.
Timing was a critical factor as the maturing construction loan was adding interest expense at a pace which would require a cash-in refinance if delays persisted. The selected lender required a temporary certificate of occupancy (TCO) to close, but city and subcontractor delays complicated the process. Fident negotiated with the lender to proceed with close and secure the TCO three days later, which kept sources and uses in balance plus avoided a costly construction insurance renewal.
Big picture, this refinancing strategically positions the borrower for long-term success. Having initially secured the construction financing without an equity partner and with limited up-front cash contributions, the borrower can now service debt from operations. This sets them up for a permanent loan that allows them to hold the asset as a cash-flowing investment for the foreseeable future.
