The Situation
An experienced residential developer with an established track record in the Phoenix-Scottsdale MSA had entitled a 6.8-acre infill site for a 72-unit build-to-rent single-family rental community. The project was fully entitled with building permits pulled, a fixed-price GC contract in place at approximately $9.2 million, and a site acquisition basis of approximately $2.4 million. Total projected cost: approximately $14.8 million. As-built appraised value (on a stabilized basis): approximately $19.5 million. The developer had equity of approximately $4.4 million committed -- 30% of total project cost. They were seeking construction financing for the remaining approximately $10.4 million.
The Challenge
The BTR asset class was relatively new to most regional bank construction lenders in 2024-2025. Most community and regional banks in Arizona underwrite single-family construction as individual spec homes -- not as a 72-unit institutionally-managed SFR portfolio. Banks that did understand the asset class were pricing conservatively given the rate environment and requiring full recourse. The developer's previous construction loans had been with a regional bank that had since pulled back from speculative residential construction. Three replacement banks declined or offered terms below the 70% LTC the developer required. A second challenge: the developer was acutely aware that the permanent financing market could change materially over an 18-24 month construction period. Without a forward commitment on the permanent loan, they were exposed to exit rate risk at a time when rates were volatile.
Our Approach
Commercial Lending Solutions ran two parallel processes: sourcing the construction loan and sourcing a forward permanent commitment simultaneously. For the construction loan, we targeted non-bank debt funds and credit companies that had developed dedicated BTR construction programs. Three lenders submitted terms. The selected lender was a nationally active debt fund with a dedicated single-family build-for-rent construction product. Loan structure: $10.35 million construction facility (70% LTC), 24-month term with two 6-month extension options, SOFR plus 385 basis points floating, full draw schedule aligned to the construction timeline, funded interest reserve of $1.1 million, completion guaranty from the developer personally. For the forward permanent commitment, we approached Freddie Mac Optigo lenders who offer forward commitments on BTR communities. A forward commitment locks in the permanent loan terms (rate, LTV, amortization) at or near construction close -- eliminating exit rate risk entirely. We secured a conditional forward commitment at 65% of as-stabilized value (approximately $12.7 million), 10-year term, fixed rate locked at approximately 6.4%, non-recourse, subject to stabilization at 90% occupancy for 90 days.
The Outcome
Construction closed within 30 days of the construction loan commitment. The developer proceeded with confidence on the permanent exit, knowing the rate was locked at 6.4% regardless of where rates moved during the 24-month build and 90-day lease-up period. The community was substantially complete within 22 months. Lease-up reached 90% occupancy within 4 months of delivery. The Freddie Mac permanent loan closed at $12.7 million. The construction loan was retired in full. Developer equity returned: approximately $4.4 million invested, approximately $6.8 million in equity value at permanent close (before tax). Project IRR on equity: approximately 34% over the 30-month total timeline.
Key Takeaway for developers
Developers in the BTR space face two compounding risks: construction lenders who do not understand the asset class, and permanent exit rate uncertainty over a 24-month build. A commercial mortgage broker who can access dedicated BTR construction programs AND secure a forward permanent commitment at construction close eliminates both risks simultaneously -- locking the developer into a defined return profile from day one.
A note on figures: All dollar amounts, rates, timelines, and specific details in this case study are illustrative and based on hypothetical scenarios representative of the types of transactions Commercial Lending Solutions arranges. They are not descriptions of any specific client, property, or transaction.