At a Glance
| Location | Massachusetts |
| Transaction Type | Office to Multifamily Conversion |
| Capital Structure | Senior Bridge + Construction Debt |
| Property Type | Multifamily |
| Property Size | 100 Units* |
| Capital Type | Private Credit Fund |
| Cost of Capital | SOFR + 500-600* |
| Senior Debt | $45,000,000* |
| Leverage | 80% Loan-to-Cost* (Excludes Tax Credits) |
*Approximate figures
Overview
Valencia Realty Capital (VRC) was engaged by an existing sponsor relationship to assist in capitalizing the acquisition and repositioning of an office building located in Massachusetts. The business plan called for the conversion of the existing property into a ~100-unit Class A multifamily asset.
When VRC was brought into the process, the property had just gone under contract, and the sponsor was operating under a compressed timeline to finalize their capital stack. The sponsor’s deposits were going hard quickly, requiring early certainty that both the debt and equity capital partners would be ready and able to close.
The sponsor’s general strategy involved acquiring the existing office building, completing permitting and securing tax credits, and then executing a conversion project to deliver a new Class A multifamily development to the market.
The Challenge
This transaction presented several complexities from a debt placement perspective:
- A tight closing timeline with hard deposit exposure
- The requirement of a high-leverage, acquisition-to-construction facility
- Pre-construction risks, including incomplete permits, unfinished drawings, and unfinalized tax credits
- A need to convince equity capital that construction financing would remain executable through the entitlement phase
Most lenders were uncomfortable with the entitlement and tax credit risks, particularly without finalized approvals or shovel-ready status. The sponsor needed a lender who could (1) underwrite pre-construction risk with sophistication, and (2) provide a structured solution that gave the equity partner confidence to proceed.
The Capital Stack Solution
After conducting a focused underwriting of the asset, entitlement path, and tax credit dynamics, Valencia identified a local private credit fund capable of executing on a two-phase, whole-loan solution. This lender had deep experience in both construction lending and entitlement-heavy transactions and was comfortable underwriting equity-like risks in complex capital stacks.
The facility addressed all major needs: it included both acquisition and construction financing, solved for leverage hurdles, and created a manageable equity check for the sponsor and their LP partners. Term sheet execution and closing proceeded on an expedited basis. Below is an outline of example terms of the overall construction facility that was offered by the lender. (** Actual deal terms are not being outlined to preserve client confidentiality).
- Proceeds: $45,000,000+ (includes both the acquisition and construction facility)
- LTC: 80%± (after adjustments for tax credits)
- Cost of Capital: SOFR + 500-600
- Lender Points: 1% in, 1% out
- Recourse: Non-recourse **Interest, Carry, and Completion Guarantees
- Term: 3 Years plus extension
- Timeframe to Term Sheet: 8 business days
- Timeframe to Close: 60 days from term sheet signing
VRC’s Role
VRC’s value was most evident in our ability to quickly analyze the unique project risks, underwrite the capital needs, and curate a targeted lender list. Within 48 hours of receiving deal materials, VRC had identified a shortlist of viable capital sources. A site tour with a qualified lender was arranged within the first week, and a fully approved term sheet was delivered in less than two weeks.
VRC worked closely with both the sponsor and lender throughout due diligence and closing process, guiding the capital partner through the permitting and tax credit framework while helping the sponsor articulate their vision and de-risk the business plan.
Ultimately, VRC facilitated a creative financing solution that met the sponsor’s timeline, solved for the unique risks, and positioned the project for successful execution.
If capital of this nature may be of interest, book a call to discuss a potential capital arrangement.
Read our last Case Study: $17MM Bridge Facility at 75% LTC for 70’s Vintage Value-Add Acquisition
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.