A closed Caldrion loan, shown under its project code name. The borrower and sponsor are not named. Terms are as of closing; returns are our underwriting targets, not realized results.
Family buyout, portfolio loan · $32.7M · 63% LTV · S+625
At a glance
| Collateral | 14 industrial, flex and light-manufacturing buildings; about 820,000 sq ft; 61 tenants; 92% leased; $3.55M NOI |
| Borrower | A new consolidated holding company owned by two of three family branches |
| Loan | $32.7M, fully funded at close (reserves held back) |
| Leverage | 62.9% LTV on a $52.0M appraisal; 10.9% debt yield |
| Term | 36 months plus one 12-month extension |
| Pricing | S+625 (≈10.00%); 1.00% origination |
| Timeline | Term sheet day 8; closed day 47 of a 75-day court deadline |
The situation
A founder built the portfolio over 40 years and left it to three branches of the family through nine LLCs with uneven ownership. One building was also held 50/50 with an unrelated former partner as tenants-in-common.
Branch C (38%) sued to dissolve the partnership. Under the court-approved settlement, the other two branches had to pay $17.8M within 75 days, or the whole portfolio would go to auction.
The existing debt was four loans from three banks totaling $9.6M, one with an interest-rate swap that cost $0.4M to break. The banks quoted 90–120 days, wanted unlimited personal guaranties from every adult in the family, and wouldn’t lend on the jointly owned building.
Sources and uses
| Uses | $M | Sources | $M |
|---|---|---|---|
| Branch C buyout | 17.8 | Caldrion loan | 32.7 |
| Refinance existing debt | 9.6 | Family’s retained equity (not cash) | ≈19.3 |
| Swap breakage | 0.4 | ||
| Buy out the co-owner’s 50% (right of first refusal) | 1.2 | ||
| Roof and paving reserve | 1.9 | ||
| Interest reserve | 0.7 | ||
| Fees and closing (14 parcels) | 1.1 | ||
| Total | 32.7 |
Structure
- All nine LLCs and the shared building rolled into one Delaware holding company, with single-purpose covenants, an independent manager and a non-consolidation opinion, so one relative’s personal bankruptcy can’t pull in the portfolio.
- First mortgages on all 14 parcels are cross-collateralized and cross-defaulted under one title policy.
- A building can be released for sale at 120% of its allocated loan amount, as long as the remaining pool’s debt yield doesn’t drop.
- The two branches’ family trusts gave carve-out guaranties. There is no blanket personal recourse.
- Rents flow into a controlled account. A full cash sweep springs in if the debt yield falls below 9.5%.
- Environmental: Phase I reports on all 14 buildings, and a Phase II on a former machine shop with historic solvent use. We also required a $250K escrow and a pollution liability insurance policy naming Caldrion as insured.
- A new operating agreement includes deadlock-breaking provisions and a third-party property manager we approved, so a future family dispute doesn’t become the lender’s problem.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| Thin coverage (1.09x on interest) | Interest reserve; 10.9% debt yield; the sales plan reduces the loan |
| Older buildings need capital work | $1.9M reserve funded at closing; property condition reports on all 14 |
| Family governance | Single-purpose holding company, independent manager, deadlock provisions |
| Environmental | Phase II, escrow, pollution insurance |
Exit and returns, as underwritten
The family sells four non-core buildings (about $12.5M) within 18 months, paying down about $9.4M at the 120% release prices. The remaining $23.3M sits on about $39.5M of value (59% LTV, roughly an 11.8% debt yield). A life company refinances it at a long-term fixed rate around months 24–30. Target: about a 10.5% IRR.
Downside
If sales are slow and values fall 15% to about $44.2M, the loan is at 74% LTV and still covered.
See all our transactions, the twelve loans compared and our criteria.
This case study is provided for information only. It is not an offer of securities or investment advice, and targeted results do not indicate future results.