At A Glance:
| Location: | Florida Gulf Coast (Punta Gorda MSA) |
| Transaction Type: | Construction |
| Capital Type: | Senior Loan |
| Property Type: | RV Park |
| Total Capitalization: | $19.0MM |
| Common Equity: | $6.0MM |
| Senior Debt: | $13.0MM (70% LTC) |
The Client
Valencia Realty Capital (“Valencia”) was introduced to the client in early 2022 by a mutual contact. The client is a tenured general contractor and property manager in the Southwest Florida region, with approximately 10 active construction projects, and cumulative development experience of over $1 billion. Valencia was pleased to have the opportunity to assist them in capitalizing an excellent development opportunity.
The Deal
Client had previously purchased an assembly of multiple adjacent parcels at an attractive cost basis. With plans to undergo development of a 160+ lot RV park, the Client was well-positioned to capitalize on a market opportunity. It was clear that the market had tremendous demand for RV facilities along the Florida Gulf Coast, and they had identified that the existing market supply was clearly outstripped. Prior to closing the loan, Client had already begun investing in site work, was finalizing building permits, and required a conventional closing time frame of 60 days.
Sponsor was seeking a non-recourse senior mortgage at a minimum of ~$9.5MM (~50% LTC), and had lined up cash equity of another $9.5MM to cover the required costs.
Our Solution
Upon engagement with the Client, Valencia advised on several loan option scenarios which included a 50% LTC non-recourse structure, and a higher-leverage option at 70% LTC with partial recourse. The partial recourse option stipulated a 25% guarantee from the principals. After analyzing the trade-offs between recourse structure versus higher loan amount, the client decided to move forward with the higher leverage option. Valencia matched the Client with a highly experienced private construction lender who provided the $13MM senior mortgage at 70% LTC.
The first mortgage construction loan featured an interest-only payment structure with pricing at WSJ Prime + 500 bps. With a 24-month initial term, the developer had the option of extending for an additional 6 months at a cost of 50 bps.
During the closing process, rising interest rates became a real concern. Valencia introduced the Client to a cost-efficient rate hedging program, which served as an attractive alternative to a rate cap. This rate hedge effectively fixed their interest rate.
Results
Valencia efficiently matched the client with the limited-recourse capital they desired to follow through with a very compelling project.
To learn how Valencia Realty Capital can structure attractive leverage for your project, contact us today.
Read our last Case Study: $2.6MM Preferred Equity for $45.1MM Condominium Development
Disclaimer: This article is written as a “high-level” overview to illustrate a real-life deal example for educational purposes only. In order to preserve the confidentiality of the Parties involved in this transaction, some identifiable information has been modified slightly. Please do not construe this article as legal, tax or financial advice. As all situations are unique and nuanced, be sure to seek the counsel of qualified professionals before making any investment or financial decisions.