The Situation
A Southern California hard money lender had funded a $5.1 million construction loan on a ground-up 72,000 square foot industrial building in the Inland Empire at 65% of projected as-built cost. The developer was experienced in the submarket and had delivered three comparable projects over the prior seven years. The building was delivered on time at approximately $7.8 million total cost, fully leased to a regional e-commerce fulfillment company on a 7-year NNN lease at $14.50 per square foot modified gross. Stabilized NOI was approximately $640,000 annually. The hard money lender's loan was maturing in four months.
The Challenge
The hard money lender had built a strong relationship with this developer over two prior projects. They did not want to lose the relationship -- but they also needed their $5.1 million back to redeploy into the next deal. The developer's conventional bank, which had informally committed to the permanent takeout, rescinded that commitment after an internal credit policy change restricting new industrial originations over $5 million in a single asset. The hard money lender referred the developer to Commercial Lending Solutions with four months to close -- enough time for a competent broker, not enough for a slow one.
Our Approach
The property's characteristics made it an excellent candidate for life company permanent financing: brand-new construction with full occupancy, a creditworthy NNN tenant on a 7-year term, strong Inland Empire submarket fundamentals (historically low vacancy, strong rent growth), and a 72,000 square foot size that fit within most life companies' industrial program parameters. Commercial Lending Solutions submitted to six life company programs and two CMBS conduits simultaneously. We needed parallel processing -- both to meet the four-month deadline and to maximize competitive tension on pricing. Four life companies responded with terms. CMBS pricing was higher given the shorter (10-year) available CMBS term versus life company programs offering 15 and 20-year terms. The developer preferred the longer fixed-rate period given the 7-year initial lease term and likely lease renewal. Selected structure: Symetra Life Insurance Company (direct correspondent), $8.4 million, 15-year fixed at 6.1%, 25-year amortization, non-recourse. LTV: approximately 62% of a $13.5 million as-stabilized appraisal. DSCR: approximately 1.33x at current in-place NOI.
The Outcome
The permanent loan closed in 54 days from engagement -- within the four-month hard money maturity deadline. The hard money lender received $5.1 million plus accrued interest in full, freeing capital for the next construction project. The developer received $8.4 million in permanent financing on an asset appraised at $13.5 million -- approximately $3.3 million in equity above loan at close. The hard money lender has since referred two additional developer clients to Commercial Lending Solutions for permanent takeouts. The referral relationship has become a recurring source of quality industrial investor deals.
Key Takeaway for hard money lenders
Hard money lenders who develop a referral relationship with a commercial mortgage broker for permanent takeouts create a client retention mechanism: borrowers who stabilize their projects come back to the hard money lender for the next acquisition knowing the permanent exit is handled. The broker's permanent placement capability is a direct extension of the hard money lender's value proposition to their borrowers.
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.