Fident Capital secured a $4.5MM cash-out term loan for a mixed-use property located in the Pacific Beach submarket of San Diego, California. The 12-unit building held eight 3- and 4- bedroom units, plus four commercial units. A regional bank, which allowed for a 60-day rate lock upon execution of the term sheet, provided the 10-yr fixed-rate financing at 70% LTV at a 3.60% rate.

The project’s ground lease presented significant challenges to the project financing. The lease, which was the basis for starting the development some 6 years prior, provided poor “see through” with the lease to “reset to market” every 25-years intervals over its 99 year term. The immense amount of potential variance between year 25 and year 26 ground rent, based upon the language, saw many lenders uncomfortable with bracketing the future ground rent obligations and the implications for project NOI that would service the debt.

The solution was found in a bank willing to do the work and approaching the land lessor push the market reset date beyond 20 years from the close (10 years for this loan, and 10 years for the future perm loan). Other challenges came from the agency lenders orientation to risk in the heart of the COVID pandemic. Sub $6MM loans were pricing well wide of the banks, mixed-use was not an accepted asset type, and no agency was willing to process the complexity of the land lease on such a small loan.