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.
Fast-close acquisition · $24.0M · 68% LTC / 63% LTV · S+650
At a glance
| Asset | 142,000 sq ft neighborhood center, 79% leased. The grocer has 7 years left plus options and sales above $550 per sq ft. A 22,000 sq ft junior-anchor space was empty after a pharmacy closed. |
| Purchase price | $31.5M (an 8.0% cap rate on $2.52M of in-place NOI) |
| Loan | $24.0M: $20.8M at close, $3.2M for tenant improvements and leasing commissions |
| Leverage | 67.6% LTC · 63.0% as-is LTV · about 58% stabilized |
| Term | 24 months plus one 12-month extension |
| Pricing | S+650 (≈10.25%); 1.00% origination; 0.25% exit fee |
| Timeline | Term sheet day 4; closed day 19 |
The situation
The seller was a closed-end real estate fund past its term, under pressure from its investors to sell by year-end. It accepted a below-market price in exchange for a 21-day close and a $1.5M non-refundable deposit. The buyer’s bank needed more than 60 days and gave the empty anchor space no value. Without a lender who could close in three weeks, the buyer would have lost both the deposit and the deal.
Sources and uses
| Uses | $M | Sources | $M |
|---|---|---|---|
| Purchase price | 31.5 | Caldrion loan | 24.0 |
| Tenant improvements and leasing commissions | 3.2 | Sponsor equity | 11.5 |
| Closing costs and fees | 0.8 | ||
| Total | 35.5 | Total | 35.5 |
Structure
- Diligence ran in parallel. Tenant estoppels (from the grocer and every tenant over 5,000 sq ft), the grocer’s subordination agreement, a Phase I environmental report, a property condition report and a zoning report were all done in 12 days.
- Leasing money is released lease by lease once each lease meets pre-agreed guidelines. For the anchor space, that means at least $12 per sq ft, at least a 7-year term, and a credit tenant or a guaranty of at least $1M.
- An anchor trigger sweeps all cash to us if the grocer goes dark, files for bankruptcy or gives notice it won’t renew.
- A lockbox springs into place if debt service coverage falls below 1.10x.
- A 1.1-acre pad site can be sold or ground-leased to a drive-thru user, with 100% of the proceeds paying down the loan.
- A 15% payment guaranty burns off once the anchor space is leased.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| Anchor space stays empty | Purchase basis of $222 per sq ft; in-place NOI covers interest about 1.2x; discount, fitness and medical tenants are active prospects |
| Co-tenancy clauses | Only three shop leases depend on the grocer, and all are modeled; the anchor trigger covers the rest |
| Grocer leaves | Parent-guaranteed lease, top-quartile sales, 7 years of term |
| Execution speed | Weekly investment committee; no outside approvals |
Exit and returns, as underwritten
Leasing the anchor space at about $14 per sq ft and 8,000 sq ft of shop space at about $26 per sq ft lifts NOI to about $3.0M, worth roughly $41M at a 7.25% cap rate. A CMBS or life-company refinance repays us around months 15–18. Target: about an 11.1% IRR.
Downside
If the anchor space stays empty for the whole term and the cap rate widens to 8.5%, the value is about $29.6M and the funded loan is at 70% LTV.
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.