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.
Construction completion · $29.0M · 69% LTC / 60% LTV · S+725
At a glance
| Asset | Three buildings, 186,000 sq ft of small-bay industrial (units of 2,500–12,000 sq ft); 72% complete; 38% pre-leased |
| Loan | $29.0M: $18.0M at close, $11.0M future funding |
| Leverage | 69.0% LTC · 57% as-is LTV · 60.3% as-stabilized LTV |
| Term | 30 months plus one 6-month extension |
| Pricing | S+725 with a 3.00% floor (≈11.00%); 1.50% origination |
| Timeline | Term sheet day 5; closed day 28 |
The situation
The general contractor took on too many jobs and walked off the site. Subcontractors filed $1.1M of mechanic’s liens, and the re-bid budget showed $3.8M of overruns. That left the bank’s $21.5M construction loan out of balance: the cost to finish exceeded the remaining loan plus equity. The bank stopped funding with $17.6M outstanding and wanted out.
Two problems made speed essential. Building C’s roof wasn’t sealed before monsoon season, and two pre-lease tenants could terminate if their spaces weren’t delivered on time.
The total project budget was $42.0M. $29.1M had been spent ($11.5M of sponsor equity and $17.6M from the bank), leaving $12.9M.
Sources and uses
| Uses | $M | Sources | $M |
|---|---|---|---|
| Repay bank | 17.6 | Caldrion loan | 29.0 |
| Pay off mechanic’s liens | 1.1 | Sponsor new equity (goes in first) | 1.5 |
| Remaining hard costs, including the overrun | 8.2 | ||
| Soft costs | 1.0 | ||
| Interest reserve | 1.9 | ||
| Fees and closing costs | 0.7 | ||
| Total | 30.5 | Total | 30.5 |
Structure
- A replacement contractor works under a guaranteed-maximum-price contract with 100% payment and performance bonds.
- An independent construction consultant approves every monthly draw, with 10% retainage.
- An in-balance test runs at every draw. If the remaining loan plus equity falls short of the cost to complete, the sponsor deposits the gap within 10 days.
- Title is updated at every draw, so no new lien can get ahead of the loan.
- The sponsor gave completion and carry guaranties.
- Each building can be released for sale at 115% of its allocated loan amount, so the sponsor can sell to owner-users.
- As a closing condition, we negotiated delivery-date extensions with both pre-lease tenants.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| Lease-up against new supply | Small-bay vacancy has historically run tighter than big-box; our loan basis is $156 per sq ft against a total cost of $226 per sq ft |
| Further overruns | Guaranteed-price contract, bonds, in-balance test, completion guaranty |
| Lien priority | Liens paid at closing; title coverage updated every draw |
| Tenant walk-away | Extended delivery dates obtained before closing |
Exit and returns, as underwritten
Stabilized NOI is about $2.69M ($15.25 per sq ft triple-net at 95% occupancy), worth about $48M at a 5.6% cap rate. A life-insurance-company refinance or building sales repay us around months 24–27. Target: roughly an 11.8% IRR.
Downside
If lease-up takes until month 30 and cap rates widen to 6.75%, the value is about $40M and the loan is at 73% LTV. We are 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.