The Deal
A seasoned development group approached Commercial Lending Solutions seeking financing for an ambitious mixed-use project in the heart of Downtown Los Angeles. The $28 million construction loan would fund a 12-story Type I concrete high-rise featuring 68 residential units complemented by ground-floor retail space. Located in one of DTLA's most dynamic neighborhoods, the project represented a significant investment in the area's ongoing urban revitalization.
The development's architectural specifications called for premium construction methods and materials, resulting in costs exceeding $500 per square foot. This price point reflected both the project's high-end positioning and the complexities inherent in downtown high-rise construction. The developer had assembled an experienced team and secured all necessary municipal approvals, but required sophisticated financing to bring their vision to fruition.
Beyond the construction phase, the project would require additional time and capital to achieve stabilized occupancy. The developer understood that successful lease-up in the competitive DTLA market would demand both time and strategic marketing investment, making adequate reserves a critical component of the financing package.
The Challenge
The financing requirements presented multiple layers of complexity that challenged conventional lending approaches. First, the developer needed maximum loan-to-cost coverage to preserve equity for other projects in their pipeline. Many lenders expressed concerns about extending high-leverage financing on a project with such elevated per-square-foot costs, particularly given the mixed-use nature combining residential and retail components.
Second, the developer required comprehensive interest reserves covering not only the 18-month construction timeline but also an additional six months for lease-up activities. This extended reserve period was essential given DTLA's competitive rental market and the time required to establish retail tenancy in a new development. Traditional construction lenders typically provide minimal lease-up coverage, creating a significant financing gap.
Third, the retail component introduced unique marketing considerations. The developer planned to allocate substantial resources toward pre-leasing and marketing efforts during construction, requiring access to these funds through the construction draw process. Most lenders view marketing expenses as soft costs outside their normal funding parameters.
The combination of high leverage requirements, extended interest reserves, and non-traditional draw requests created a financing puzzle that required specialized expertise and creative structuring to solve effectively.
The Solution
Trevor Damyan and his team at Commercial Lending Solutions identified a national bank with both the appetite and capability to meet the project's complex requirements. This institution had established specialized programs for urban mixed-use developments and understood the unique dynamics of the DTLA market.
The financing structure provided maximum loan-to-cost coverage while incorporating comprehensive interest reserves extending through the lease-up period. This approach addressed the developer's leverage requirements while ensuring adequate capital availability throughout the project lifecycle. The extended reserve structure acknowledged the realities of mixed-use lease-up timelines and provided the developer with necessary breathing room to achieve stabilization.
Perhaps most innovatively, the lender agreed to include marketing budget allocations within the construction draw schedule. This provision recognized that pre-leasing and retail tenant attraction required significant upfront investment and that these expenses directly supported the project's ultimate success. The draw structure was carefully crafted to release marketing funds in coordination with construction milestones.
The loan terms reflected current market conditions while providing the developer with certainty throughout the construction process. Interest rate mechanisms were structured to provide predictability, and the draw schedule was designed to optimize cash flow management during construction.
The Outcome
The $28 million financing package was successfully closed within 45 days of initial application, allowing the developer to commence construction on schedule. The comprehensive structure eliminated the need for gap financing or additional equity injections during construction, preserving the developer's capital for other opportunities.
The extended interest reserve period proved crucial as the project navigated construction delays common to high-rise developments. Rather than facing pressure to secure additional funding, the developer maintained focus on construction quality and timeline management. The marketing budget provision enabled early retail leasing activities, generating pre-opening buzz and tenant interest.
Construction proceeded smoothly with the national bank's experienced construction administration team providing efficient draw processing and project monitoring. The lender's familiarity with mixed-use projects contributed to streamlined communication and decision-making throughout the construction phase.
The project represents another successful example of Commercial Lending Solutions' ability to structure complex financing for challenging deals. By understanding both borrower needs and lender capabilities, Trevor Damyan's team delivered a solution that satisfied all parties while supporting DTLA's continued growth and development.