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Construction financing for middle market Class A distribution center
The Challenge
Sponsor was breaking ground on 1.2M SF of Class A logistics product in Phoenix with no pre-leasing in place. The industrial market had softened from its 2022 peak and lenders were re-underwriting submarket rent assumptions 15 to 20% lower than the sponsor's pro forma.
The Structure
Construction loan from a debt fund at 65% LTC, non-recourse, priced at SOFR plus 275 bps with a two-year initial term and two six-month extensions. Sizing used a sensitivity case at market-clearing rents rather than trophy rents. Earn-out mechanism unlocked proceeds at defined leasing milestones.
The Outcome
Closed without pre-leasing. Sponsor secured certainty of execution and avoided recourse, which would have been required by every bank quote. First building delivered on time and achieved LOI within 90 days of CofO.
Deal Mechanics
Closed with zero pre-leasing
Non-recourse at 65% LTC
Leasing earn-out unlocked additional proceeds
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