$12,000,000 35-Unit Ground Up, Los Angeles, CA

Overview

Commercial Lending Solutions arranged a $12,000,000 construction loan for a 35-unit ground-up apartment development in Los Angeles, California. The project targets a city grappling with a well-documented housing shortage, but the deal itself sat in one of the more uncomfortable corners of the construction lending market: large enough to demand institutional-grade underwriting, small enough to get passed over by the capital sources that typically dominate multifamily construction at this scale.

The Deal

The sponsor came to CLS CRE with a fully entitled multifamily development in Los Angeles, leaning on density bonus and Transit Oriented Communities relief to achieve the unit count and parking configuration the project required. They needed $12,000,000 in construction financing, a full interest reserve to carry the project through a realistic build and lease-up timeline, and a clear path to permanent financing at stabilization. The borrower had the sponsorship credentials and net worth to support a recourse construction loan, but was not opposed to a non-recourse structure if the economics made sense. The goal was straightforward: close a construction loan that covered hard costs, soft costs, and carry, with a lender that understood Los Angeles entitlements and was not going to panic at the first sign of a plan-check delay.

The Challenge

Thirty-five units is an awkward number in the construction lending market. Debt funds that dominate institutional multifamily construction tend to set their floor around $25,000,000 and are not particularly interested in coming down. Community banks that might otherwise be natural fits for a deal this size needed significant comfort before committing $12,000,000 in construction dollars, specifically around the strength of the entitlements, the presence of a guaranteed maximum price contract, and a completion guaranty from a creditworthy sponsor. The regional banking stress of the prior two years made this harder. Several lenders that had historically been active in ground-up multifamily had tightened their CRE concentration limits or pulled back from construction altogether, shrinking the pool of institutions still quoting competitive leverage on a project of this size in Southern California.

Los Angeles added its own layer of complexity. Discretionary entitlement processes, even when smoothed by density bonus or TOC programs, carry real execution risk. Appeal periods and plan-check delays routinely push carry costs higher than initial projections, which means the interest reserve has to be sized to survive a slower timeline, not an optimistic one. Any lender underwriting this deal had to be comfortable with construction cost inflation, trade labor availability in the LA market, and a lease-up absorption schedule that accounted for actual market conditions, not a best-case scenario. Lenders that were simply underwriting sponsor net worth and checking a credit box were not going to be useful here.

There was also the question of the takeout. A construction loan without a credible permanent financing path is a bridge to nowhere. For a deal of this size, that meant lining up agency or life company interest before closing so the exit was not theoretical.

The Solution

CLS CRE focused the placement effort on regional banks and credit unions with active CRE construction desks, institutions that were still writing ground-up multifamily in California and had the appetite and underwriting infrastructure to get comfortable with a deal of this size and complexity. A construction-focused debt fund was kept as a parallel track for the non-recourse alternative, with the understanding that the pricing would likely be wider but the structural flexibility could justify the difference depending on the sponsor's priorities.

The loan structure was built around realistic assumptions rather than optimistic ones. The interest reserve was sized to absorb a delayed entitlement or extended lease-up without creating a liquidity crisis. Hard cost contingency was set at a level that reflected actual construction cost volatility in the Los Angeles market. The guaranteed maximum price contract and completion guaranty were presented as foundational underwriting items, not afterthoughts, which allowed lenders to get comfortable with the credit without needing to haircut leverage to compensate for execution uncertainty.

Before the construction loan closed, CLS CRE engaged agency and life company lenders on the permanent takeout. Having a credible permanent financing commitment in place gave the construction lender confidence in the exit and gave the borrower certainty that the capital stack held together from groundbreaking through stabilization.

The Outcome

The borrower closed a $12,000,000 construction loan with a regional lender that had a genuine understanding of the Los Angeles multifamily market and the entitlement environment the project was navigating. The loan was structured with a fixed-to-floating rate option, an interest reserve sized for a realistic timeline, and a term sufficient to carry the project through construction and into early lease-up. Permanent financing was identified prior to closing, removing the takeout risk that had made other lenders hesitant to engage. The sponsor had the capital structure they needed to break ground without the financing itself becoming the primary project risk.