Deal Summary
| Transaction Type | Construction Loan Takeout & Completion |
| Asset Class | 3 Luxury Waterfront Homes |
| Capital Structure | Senior Construction Debt |
| Asset Location | Martha’s Vineyard, MA |
| Total Capitalization | $19,500,000* |
| Senior Debt | $14,500,000* (Private Credit Fund) |
| Leverage | ~74% Loan-to-Cost |
*Approximate figures
Project Background
Valencia Realty Capital (VRC) was engaged by a Boston-based developer with a luxury residential project on Martha’s Vineyard in need of construction completion capital. The project consisted of three high-end waterfront homes, mid-construction, when the sponsor’s local banking partner declined to increase proceeds on the existing loan despite an increase in construction costs.
This funding constraint forced the sponsor to consider injecting significant additional equity into the project. Compounding the issue, the bank’s slow reconciliation of work and delays in construction draws disrupted project continuity, leading to payment delays to subcontractors and threatening overall timelines. Seeking a solution that would both minimize additional equity contributions and ensure a smoother funding process, the sponsor turned to VRC to source an alternative lender better aligned with the project’s needs.
Role of VRC
VRC was tasked with finding a capital partner who could seamlessly step in mid-construction, provide sufficient funding to cover the cost overruns, and offer more flexible terms that would allow the sponsor to complete the project and strategically time its market exit. Leveraging its network of private credit funds experienced in luxury residential developments, VRC secured multiple term sheets and strategically negotiated optimized terms tailored to the sponsor’s key pain points.
Throughout the process, VRC played a hands-on role, coordinating among the sponsor, lender, legal counsel, and other stakeholders to ensure a smooth and efficient closing. This allowed the sponsor to avoid deploying millions in additional equity and transition to a lending partner better equipped to manage the construction process and draws with greater efficiency.
Financing Structure
The final capital structure featured a senior construction loan provided by a private credit fund specializing in high-end residential projects. VRC was able to negotiate several key enhancements to the original terms, including:
- Segmented Loan Structure: Recognizing that one of the three homes was already 60-70% complete, VRC negotiated a split-loan structure that assigned separate minimum interest periods for each home, reducing unnecessary interest carry and saving the sponsor substantial holding costs.
- Optimized Release Provisions: Instead of a full cash sweep upon each sale, VRC secured partial release prices, allowing the sponsor to realize portions of their equity upon the sale of each home, improving cash flow and providing earlier returns.
- Interest Rate Reduction: VRC successfully negotiated a 50 basis point reduction from the initial proposed rate, directly improving the project’s overall cost of capital.
- Increased Loan Proceeds: An additional $500,000 was secured above the lender’s initial offer, reducing the sponsor’s equity requirement and strengthening project liquidity.
Adding Value
By restructuring the financing and negotiating more favorable terms, VRC enabled the sponsor to move forward without injecting several million in additional equity while also ensuring project continuity. The segmented loan approach and optimized release structure provided the sponsor with both cost savings and earlier access to profits.
Most critically, the new capital partner brought a more agile approach to funding, improving the speed of construction draws and providing the sponsor with the confidence to push the project toward completion. With construction now back in full swing and the original bank lender in the rearview, the sponsor is positioned to complete the luxury development and capitalize on favorable market conditions.
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 including approximations of financial figures. 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.
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