Overview
Commercial Lending Solutions arranged $55,000,000 in construction financing for a 250-unit luxury multifamily development in Washington, DC's Navy Yard neighborhood. The deal required building a club structure to satisfy environmental, regulatory, and market timing concerns that had already turned away multiple lenders before the sponsor engaged our team.
The Deal
The sponsor needed a full-cycle construction facility to take a ground-up podium tower from vertical construction through certificate of occupancy and into initial lease-up. The project sits on the Anacostia waterfront in Navy Yard, one of the District's most active and fastest-appreciating submarkets, anchored by a dense concentration of waterfront dining, entertainment, and mixed-use development that has drawn both institutional capital and high-income renters over the past decade.
The ask was a $55,000,000 draw facility with a floating rate structure, a full interest reserve, and enough runway in the loan term to accommodate DC's permitting timeline and a realistic stabilization period. The sponsor also wanted a clear, negotiated path to a mini-perm takeout rather than a hard maturity date that would force a refinance in whatever rate environment happened to exist at the end of the draw period.
The Challenge
Three separate underwriting problems came together on this deal, and any one of them alone would have been enough to slow the process. Together, they narrowed the realistic lender pool considerably.
Environmental history on the site. The parcel carries the legacy of its industrial past. The land has a direct physical and historical connection to the actual Washington Navy Yard, which means hydrocarbon contamination, heavy metals, and the full range of concerns that come with a brownfield waterfront site in a major urban market. Every lender that looked at this deal came in with the same requirement: a clean Phase II environmental assessment and a funded remediation escrow before the first draw would be released. That is a reasonable position, but it added a layer of due diligence cost and timing complexity that made several lenders uncomfortable enough to pass.
DC's Inclusionary Zoning ordinance. The District's IZ requirements pushed roughly 8 to 10 percent of the 250 units into restricted AMI rent tiers. For a straight market-rate proforma, that compression in blended NOI is manageable. For a construction lender trying to underwrite debt yield at stabilization, it introduces a rounding problem that becomes a real problem at this loan size. Lenders kept stress-testing the proforma against a slower lease-up scenario and watching their debt yield coverage erode faster than they wanted.
The post-2023 regional bank construction market. Most regional banks with Mid-Atlantic construction experience had already reduced their CRE construction exposure by the time this deal came to market. The banks that remained active were managing concentration limits carefully. Finding a single lender willing to carry a $55,000,000 hold on a mixed-income, mixed-use podium tower with environmental complexity in a market with an active new supply pipeline was not realistic. The pool of institutions that would even underwrite the full facility was essentially empty.
The Solution
The answer was a club structure. We paired a regional bank with genuine Mid-Atlantic construction underwriting experience with a dedicated real estate debt fund, splitting the hold between the two in a way that kept each exposure within acceptable concentration limits while giving the sponsor the full $55,000,000 facility under a single set of negotiated loan documents.
The interest reserve was sized conservatively, stress-tested against both the Navy Yard submarket's active supply pipeline and the rate environment. The SOFR-based floating rate structure was paired with a rate cap sized and priced at close, not deferred, which was a condition both lenders required and one the sponsor accepted without significant pushback once the alternative was explained.
The environmental escrow was structured to satisfy both club members' requirements without over-capitalizing the reserve to a level that would impair the sponsor's equity returns. The remediation scope was defined specifically enough that the escrow release conditions were objective rather than discretionary, which removed a significant source of future lender-borrower friction.
On the IZ units, we rebuilt the stabilized proforma using actual DC restricted rent schedules at the applicable AMI tiers, rather than allowing lenders to apply their own haircuts. That gave both club members a consistent underwriting basis and reduced the spread between best-case and stress-case debt yield at stabilization.
Pre-leasing and debt yield triggers were negotiated up front as explicit conversion conditions for the mini-perm option. The sponsor knows exactly what lease-up performance unlocks the takeout extension and what happens if lease-up runs behind the market study.
The Outcome
The sponsor closed a $55,000,000 construction facility on a timeline consistent with the project's permit and construction schedule. The club structure delivered full proceeds without requiring the sponsor to accept a gap or mezzanine layer. The rate cap, interest reserve, and defined conversion triggers give the project a credible path to stabilization even if absorption in Navy Yard runs slower than current market studies suggest. The deal closed. The shovel is in the ground.