Fident Capital secured $16.5MM of construction financing for a 70-unit multifamily development in San Diego’s Golden Hill neighborhood. The borrower, a repeat Fident client and established San Diego-based builder/developer with deep expertise in middle income affordable housing strategies, received senior financing from a NYC-based publicly traded mortgage REIT at 83% LTC and secured another 11 points of preferred equity from a local impact investor. In exchange for the preferred equity, 31 units will be deed-restricted at 100% AMI for 30 years, supplementing existing affordable housing requirements under San Diego’s Complete Communities zoning. The combined 94% LTC financing enables the sponsor to develop this $18MM project with relatively little cash investment.
Crafting a compelling narrative around the development’s unique characteristics posed a primary challenge. Fident’s extensive market analysis supported the viability of the zero-parking design, identifying 370 street parking spaces within a two-block radius and highlighting potential parking opportunities on adjacent, to-be-vacated, city land. In addition to limited parking, the project utilized efficient unit sizes and a simple amenity package to minimize building costs. Most importantly, Fident’s market study validated that the subject property’s discounted rents –approximately 25% below market – effectively balance the cost-saving design while delivering market-rate investment returns.
Late-stage fluctuations tested the deal’s closing. Cost changes just before closing required creative capital reallocations, contract modifications, and budget revisions. Additionally, the security instruments from the San Diego Housing Commission and the impact investor, while for a distinct set of units, appeared to conflict as both parties intended to utilize similar deeds of trust and affordability agreements to memorialize their respective rent restrictions. This raised concerns for the senior lender and required some precise legal work to satisfy all parties. Ultimately, the impact investor was compelled to utilize a reporting and monitoring agreement to enforce the regulatory agreement.
Despite these hurdles, the sponsor’s proven track record in the market and the project’s compelling metrics – including a $232K/unit loan basis and an attractive yield on cost – attracted competitive financing. Fident’s deep experience with similar deal types helped navigate the complex ownership structures and security arrangements while maintaining optimal leverage. The firm is pleased to support the creation of much-needed housing in this dynamic San Diego neighborhood.
