$43,900,000 Single Tenant Net Lease, Fairfield, CA

Overview

A $43,900,000 build-to-suit construction loan in Fairfield, California for a single tenant net lease property occupied by a national credit tenant. The financing required structuring a ground-up construction facility around a lease that would not generate a single dollar of rent until certificate of occupancy, while simultaneously locking a permanent takeout commitment before the first shovel broke ground. This is the kind of deal most capital sources decline before finishing the term sheet request.

The Deal

The sponsor had secured a build-to-suit agreement with an investment-grade, nationally recognized tenant on an absolute net lease structure. The project sat in Solano County along the Interstate 80 corridor, a submarket with strong logistics fundamentals but enough environmental sensitivity near the Suisun Marsh to put site due diligence on the critical path from day one.

What the borrower needed was straightforward to describe and genuinely difficult to execute: a construction loan sized to roughly 75 to 80 percent of total project cost, an interest reserve large enough to carry 18 to 24 months of construction and stabilization, and a clear, committed exit into permanent financing before the construction lender would sign a term sheet. The permanent financing had to be priced off the tenant's corporate credit rather than a stabilized cap rate, because the building would not exist yet when both loans were being negotiated simultaneously.

The Challenge

Build-to-suit single tenant net lease construction sits in an uncomfortable middle ground that most lenders are not set up to underwrite. Construction lenders want to know their exit. Permanent lenders want to see a certificate of occupancy. When you are trying to close both at the same time, you are asking each group to get comfortable with the other's risk before either of them has full certainty.

The collateral does not exist at loan closing. That means the construction lender cannot underwrite to stabilized value. The entire sizing exercise runs on loan-to-cost, and the lender has to accept completion risk, lease commencement risk, and the concentration risk that comes with exactly one tenant covering 100 percent of debt service. One credit, one building, one lease. If that tenant does not take occupancy, there is no income, no takeout, and no exit for the construction lender.

The Fairfield site introduced a second layer of complexity. The I-80 corridor location, adjacent to sensitive wetland geography, made Phase I and Phase II environmental review non-negotiable, and any remediation finding or entitlement delay would push back rent commencement directly, burning through the interest reserve before the permanent loan could fund. Grading and permitting timelines had to be stress-tested into the reserve calculation before any lender would underwrite the schedule.

Finally, the lease itself had to be treated as the primary collateral. With a single tenant covering the entire debt service, the construction lender needed bondable lease language, executed SNDA documentation, and estoppel protections locked before any funds were released. This effectively converted a ground-up construction loan into a credit tenant lease financing wrapped around an active job site. Most banks are comfortable with one of those things. Almost none are comfortable with both at the same time.

The Solution

The structure was built in two parallel tracks from the first day of engagement. On the permanent side, we approached life insurance companies and CMBS conduits that had demonstrated willingness to price off investment-grade corporate credit rather than waiting for occupancy. The goal was a forward takeout commitment, fixed rate, with a 25-year amortization schedule and a term in the 10 to 15 year range, sized to a debt service coverage ratio appropriate for an absolute net lease with no landlord expense exposure. Pricing conversations started before the construction lender was selected, because the construction lender's willingness to hold the position for 18 to 24 months depended entirely on knowing what the exit looked like.

On the construction side, the mandate went to a lender, specifically a debt fund with bank-quality credit underwriting and a higher tolerance for the lease-up period, that could size to loan-to-cost and hold through completion without pressure to sell or syndicate the position mid-construction. The interest reserve was sized conservatively, stress-tested against an extended permitting timeline given the environmental review requirements, and built into the loan structure rather than treated as a contingency.

Lease documentation was negotiated in parallel with the financing. SNDA and estoppel requirements were written into the construction loan commitment as conditions to initial draw, not as post-closing deliverables. That single structural decision is what made the credit story work: the construction lender was not taking a leap of faith on the lease. The lease was underwritten as a binding instrument before a dollar left the account.

The Outcome

The sponsor closed a $43,900,000 construction facility with a committed forward permanent takeout in place at signing. The project proceeded with an interest reserve sized for the actual risk profile of the site, environmental review completed on schedule, and lease documentation that satisfied both the construction lender and the permanent takeout counterparty from day one. The sponsor captured development returns on a ground-up project while the financing structure reflected the investment-grade credit quality of the underlying lease. That combination is exactly what build-to-suit is supposed to deliver. Getting the capital stack to recognize it is the work.