Fident Capital secured $8.1MM (73% LTC, 56% LTV) of bridge financing for a 42-unit motel-to-multifamily conversion in the La Mesa submarket of San Diego, CA. The borrower, a repeat Fident client, has built numerous successful rental and for-sale residential communities in the Greater San Diego Area. The lender, a private debt fund based out of New York, provided non-recourse financing in excess of the requested 70% LTC with a rate step down at an early occupancy threshold.
A primary challenge of the assignment was proving out pro forma revenue assumptions for unit sizes that fell between typical studios and one-bedrooms. Fident’s extensive analysis garnered a comp set that demonstrated the subject property’s relative whole dollar value proposition when compared to competitive one-bedroom units. Fident also presented recent multifamily sales that supported the project’s as-stabilized value.
Another challenge of the financing was to assuage lender concerns about the property’s zoning and use. While the proposed residential use was permitted in this commercially zoned area, the borrower creatively satisfied residential density regulations by utilizing the state density bonus and designating several of the units as affordable. The resulting project received overwhelming municipal support and will transform a dated and underutilized property into badly needed attainable housing.
Despite the challenges, a strong 6.5% cap on cost, coupled with the favorable multifamily demographic tailwinds in the submarket, fueled plenty of lender interest. The existing motel property itself was also ripe for conversion, with recent building upgrades, kitchenettes already in place, and suite-style floorplans and larger unit sizes than traditional motel/hotel rooms. After creating a market and procuring term sheets, Fident successfully countered the winning lender, securing attractive price and lender fees for the client. The winning terms exceed the pro forma proceeds sought. The structure also offers an 80 bps stepdown in rate upon 12% project occupancy, a compelling structure for a relatively light value-add project. We are pleased to support the creation of much-needed attainable housing in the San Diego area and are looking forward to seeing this project come to fruition.
