A repeat client needed 70% leverage on a heavy-renovation 1970s value-add. The only lenders willing to go that high were quoting SOFR + 275-325. Valencia Realty Capital (VRC) sourced the same leverage in the high 100s over SOFR, with recourse capped at 20%, by finding a bank willing to underwrite the business plan and the sponsor’s track record in detail rather than treating the deal as a category.
At a Glance
| Market | Lexington, KY MSA |
| Transaction | Value-add multifamily acquisition (heavy renovation) |
| Units | 200+ units |
| Vintage | 1970s |
| Business plan | In-place NOI ~$1M, with roughly 75% growth to year-3 stabilization |
| Senior Loan Amount | Sub $20M |
| Capital | National bank, bridge-to-agency |
| Leverage | 70% of total cost |
| Cost of capital | SOFR + high 100s |
| Recourse | Limited. Capped at 20% of principal |
| VRC role | Debt advisory from the offer stage; quotes within one week; structuring |
Figures approximate; details may be modified to preserve confidentiality.
A value-add multifamily operator, and a repeat VRC client, put a 200+ unit, 1970s-vintage community in the Lexington, KY MSA under contract at just north of $20M. The sponsor runs a disciplined, repeatable playbook: acquiring 1960s to 1980s vintage assets and executing major interior and exterior renovations. Here, the plan called for a full renovation budget north of $15K per unit with the majority of the funds allocated to unit interior upgrades. The business plan was aggressive but well-supported, with strong rent-comp data and the sponsor’s demonstrated experience in the market. Together, those factors let the sponsor underwrite a roughly 75% increase in NOI from acquisition to year-three stabilization, on an asset already producing enough day-one cash flow to cover debt service at closing.
The challenge was in the financing, specifically in finding the right lender. The sponsor wanted three things that rarely arrive together in a single loan on an aggressive value-add: leverage at 70% of total project cost, pricing in the range of agency debt, and little to no recourse. Each is available on its own. Together, they force a trade-off, and the two conventional paths each undermined the deal in a different way.
Agency debt was the lowest-cost option, with non-recourse terms, but on this profile the heavy renovation budget and trailing NOI capped proceeds near 55% of total cost. At the purchase price, that left a multimillion-dollar equity gap the sponsor would have to fund, which would have suppressed project returns. The private debt funds that would advance the full 70% could also offer non-recourse, but given the sub-$20M loan size, the older vintage, and the scale of the NOI improvement, they priced the loan at SOFR + 275-325, well over a point above agency. That pricing eroded returns from the other direction.
Underlying both quotes was a common underwriting pattern. The deal was being labeled higher-risk largely on the basis of its vintage and the scope of the value-add, and reduced to a set of category checkboxes. The asset was older, and the sponsor was investing heavily, but this sponsor was well-qualified to execute on this vintage, the operating budget was conservative, and the renovation was scoped to capture rent levels that nearby comparables had already established. None of that context fit neatly into a standard risk bucket. The sponsor was left with the familiar value-add squeeze: low-cost debt that could not reach the required leverage, or sufficient leverage at a cost that undermined returns.
VRC engaged early, advising while the sponsor was still submitting offers rather than after terms were set. That timing mattered. VRC delivered initial lender quotes within a week of underwriting, provided term-sheet guidance before the purchase price was finalized with the seller, and refined the structure after the PSA but before any equity was committed. The sponsor negotiated from current capital-markets intelligence rather than assumption.
Rather than accept the trade-off between pricing and leverage, VRC took a different approach. Instead of marketing the deal to funds that would treat a 1970s heavy renovation as a category, VRC identified a national bank willing to underwrite the specifics: the unit-by-unit renovation economics, the NOI ramp, and the in-place coverage. VRC also arranged a site tour with the sponsor covering both the subject property and other assets in the sponsor’s portfolio, so the lender could evaluate the sponsor’s execution directly rather than on paper. Because the bank underwrote the actual plan and the specific operator, it became comfortable where others were not: 70% of total cost, in the high 100s over SOFR, with recourse capped at 20%. VRC structured the loan as a bridge-to-agency facility, allowing the sponsor to execute the renovation on flexible bridge terms and transition into permanent agency debt at stabilization through a single relationship and a single closing.
The result reconciled the three requirements the market had treated as mutually exclusive:
- Pricing in the high 100s over SOFR, roughly 100 to 140 bps inside the SOFR + 275-325 the debt funds were quoting for the same leverage. Agency would have priced lower still, but agency could not approach the required leverage.
- 70% of total project cost, above the level agency would reach (roughly 55 to 60%).
- Recourse capped at 20% of principal. Because the debt-fund alternative offered non-recourse, this was a deliberate and limited trade the sponsor was comfortable making in exchange for materially lower pricing, supported by the in-place cash flow and the projected upside.
- A bridge-to-agency structure, so stabilization did not require re-sourcing a refinance.
- Execution from the offer stage, with quotes within a week and the structure set before equity was committed.
The sponsor obtained debt-fund-level leverage at pricing much closer to agency, with limited recourse, on a business plan most lenders would not have underwritten.
If you are working through a capital stack and are either coming up short on proceeds or looking for a structure with more flexibility, give us a call. Send us a live deal with the underwriting basics, and we will come back with a market-verified quote, with real terms, typically within two weeks. There is no cost unless the deal closes.
If capital of this nature may be of interest, book a call to discuss a potential capital arrangement.
Read our last Case Study: $7MM+ Bridge Loan at SOFR + 200-250 for Industrial Acquisition in Asheville MSA
Disclaimer: This overview illustrates a real transaction for educational purposes only. To preserve confidentiality, some identifying information may be modified, including approximation of financial figures. This is not legal, tax, or financial advice; consult qualified professionals before making any investment or financial decision.