$34,000,000 Industrial Distribution Center in Commerce, CA

Executive Summary

Commercial Lending Solutions arranged $34 million in acquisition financing for a Class A industrial distribution center in Commerce, California. The borrower, an out-of-state private equity fund making their first West Coast industrial investment, required non-recourse financing with a long-term hold structure that eliminated traditional bank lenders from consideration. Through a competitive process involving three life insurance companies and one CMBS conduit, we secured a 10-year fixed-rate loan from a national life company at 60% LTV with five years of interest-only payments.

Property and Market Overview

The 234,000 square foot distribution facility sits in the Commerce/Vernon industrial corridor, positioned along the critical I-5/I-710 freeway junction that forms the backbone of the Los Angeles logistics network. This submarket represents the tightest industrial real estate market in the United States, with vacancy rates consistently below 1% due to constrained supply and proximity to the ports of Los Angeles and Long Beach.

The property features a single tenant, a national logistics company with over 12 years remaining on their lease. The facility includes 32-foot clear heights, multiple dock doors, and ESFR sprinkler systems standard for modern distribution operations. The tenant's creditworthiness and lease term provided stable cash flow underpinning the financing structure.

Borrower Profile and Requirements

The borrower, a private equity fund based outside California, was making their inaugural acquisition in the West Coast industrial market. Their investment thesis centered on securing long-term exposure to the supply-constrained Los Angeles logistics market through a stabilized, single-tenant asset.

The fund's financing requirements created immediate challenges for traditional lending sources. They demanded non-recourse debt to protect their limited partners, a 10-year term to match their hold period, and interest-only payments during the initial years to maximize cash-on-cash returns. These parameters effectively eliminated bank lenders, whose regulatory constraints typically limit them to shorter terms and full amortization structures.

Financing Challenges

Several factors complicated the financing process beyond the borrower's structural requirements. As an out-of-state entity with no West Coast track record, the private equity fund faced additional scrutiny from lenders unfamiliar with their operations. The single-tenant nature of the property, while providing stable cash flow, created concentration risk that some lenders viewed unfavorably.

The borrower's lack of local market knowledge also presented execution risk. They needed a financing partner who understood both the unique characteristics of the Los Angeles industrial market and the capital sources willing to provide long-term, non-recourse debt on these assets.

Capital Markets Execution

Given the borrower's requirements, we immediately focused on life insurance companies and CMBS conduits as the primary capital sources. Life companies typically offer the longest terms and most flexible structures for stabilized income properties, while CMBS conduits can provide non-recourse execution on single-tenant deals.

We launched a competitive process involving three national life insurance companies and one investment-grade CMBS conduit. Each capital source received identical deal packages highlighting the property's strategic location, tenant credit quality, and the supply constraints driving rent growth in the Commerce/Vernon corridor.

The marketing process revealed varying appetites for Los Angeles industrial exposure. While all lenders recognized the market fundamentals, one national life company had specifically identified LA industrial as a target allocation for their real estate debt portfolio.

Winning Structure

The successful life company provided the most aggressive terms across all metrics important to the borrower. The final structure included a $34 million loan at 60% loan-to-value, with a 10-year fixed rate and interest-only payments for the first five years before transitioning to a 30-year amortization schedule.

The non-recourse structure included standard carve-outs for fraud, environmental issues, and bankruptcy, but no completion guarantees or operating deficits given the stabilized nature of the asset. The lender also provided flexibility for future capital improvements and tenant improvements within the existing lease structure.

Market Impact and Conclusion

This transaction demonstrates the capital markets' continued appetite for well-located industrial assets in supply-constrained markets. The sub-4% cap rate reflected investors' willingness to accept lower current returns in exchange for exposure to the Los Angeles logistics market.

For the private equity borrower, the financing structure aligned perfectly with their investment strategy, providing non-recourse leverage at attractive rates while preserving flexibility for their eventual disposition. The transaction also established their credibility in the West Coast market for future acquisitions.

The deal closed within 45 days of application, demonstrating that even complex, long-term financing structures can be executed efficiently when matched with the appropriate capital source and supported by strong market fundamentals.