$10,000,000 Flex Industrial / Maker Space, Commerce, CA

A $10 million permanent financing on a flex industrial campus in Commerce presented the classic underwriting challenges that make these deals more complex than standard warehouse financing. The 150,000 square foot multi-tenant property housed a diverse mix of creator economy businesses, light manufacturing operations, and artisan tenants across 30+ units. While the sponsor had a strong track record in industrial assets, their existing bank relationship couldn't get comfortable with the tenant profile and lease structure that defines successful maker space operations.

The Deal

The borrower needed permanent financing to refinance acquisition debt on a fully-stabilized flex industrial campus they had owned for three years. The property sits in Commerce's core industrial corridor, benefiting from the infill Los Angeles location premium that drives outsized rent growth in well-located smaller industrial assets. The sponsor had successfully repositioned the asset from traditional warehouse space to a thriving maker-space community, increasing occupancy from 70% to 95% and rents from $0.85 to $1.20 per square foot.

The financing requirement was straightforward: a 10-year permanent loan with 25-year amortization at 70% LTV. The complexity lay entirely in the property's tenant mix and lease structure, which had evolved to serve the creative and light manufacturing businesses that increasingly define LA's industrial tenant demand.

The Challenge

Standard industrial underwriting assumes big-box tenants with 5-10 year lease terms and predictable business models. This property operated on a fundamentally different model: 30+ tenants with an average lease term of 24 months, representing industries from custom furniture makers to food production startups to artist studios. The weighted average lease term of 18 months made traditional life company underwriters nervous, despite the property maintaining 95%+ occupancy for two years running.

The sponsor's existing bank had quoted 75 basis points over the 10-year Treasury with a 65% LTV ceiling, reflecting their discomfort with the tenant concentration and lease rollover risk. Two other regional banks passed entirely, citing unfamiliarity with maker-space tenant creditworthiness. The life companies we initially approached applied big-box industrial rent growth assumptions of 2-3% annually, ignoring the infill LA market dynamics that had driven 8% annual growth at this property.

The fundamental disconnect was that lenders were underwriting this as a traditional industrial asset rather than recognizing the different risk/return profile that defines successful flex industrial properties in supply-constrained markets.

The Solution

We identified a national life insurance company with a dedicated flex industrial program that had closed similar deals in Brooklyn and Oakland. Their underwriting team understood that shorter lease terms in maker spaces often correlate with higher rent growth and strong tenant retention when the space meets market needs.

The key was demonstrating three factors specific to this property type: tenant retention rates that exceeded lease terms (month-to-month tenants staying 3+ years), rent growth that reflected infill location premiums rather than commodity industrial pricing, and operational efficiency metrics that showed lower tenant improvement costs despite higher turnover.

We structured the submission around comparable properties in similar markets, emphasizing the sponsor's property management systems that had driven consistent occupancy despite shorter lease terms. The lender's appraisal included flex industrial comparables rather than big-box sales, supporting a valuation that reflected the property's actual highest and best use.

The Outcome

The lender closed at 70% LTV with a 4.85% fixed rate on a 10-year term with 25-year amortization, representing 65 basis points over the 10-year Treasury. The 10 basis point improvement over the sponsor's bank quote reflected the lender's comfort with the asset class rather than simply competitive pricing.

More importantly, the lender underwrote 5% annual rent growth assumptions based on infill LA industrial fundamentals, supporting a debt service coverage ratio calculation that reflected the property's actual performance rather than generic industrial metrics. The loan included flexible prepayment terms and no lockout period, acknowledging that flex industrial owners often optimize capital structure more frequently than big-box industrial investors.

The transaction closed in 45 days with minimal due diligence friction, demonstrating how the right lender match eliminates the extended underwriting timeline that often defines specialty property financings. The borrower achieved both the rate improvement and the LTV target that their existing relationship couldn't provide, entirely due to lender selection rather than deal restructuring.